Risk parity for Mixed Tempered Stable distributed sources of risk

Lorenzo Mercuri () and Edit Rroji ()
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Edit Rroji: University of Trieste

Annals of Operations Research, 2018, vol. 260, issue 1, No 17, 375-393

Abstract: Abstract In this paper we discuss a detailed methodology for dealing with Risk parity in a parametric context. In particular, we use the Independent Component Analysis for a linear decomposition of portfolio risk factors. Each Independent Component is modeled with the Mixed Tempered Stable distribution. Risk parity optimal portfolio weights are calculated for three risk measures: Volatility, modified Value At Risk and modified Expected Shortfall. Empirical analysis is discussed in terms of out-of-sample performance and portfolio diversification.

Keywords: Risk parity; Mixed Tempered Stable; Optimization (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10479-016-2394-y

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