Robust portfolio allocation with systematic risk contribution restrictions

Serge Darolles, Christian Gourieroux and Emmanuelle Jay
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Serge Darolles: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Christian Gourieroux: CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique
Emmanuelle Jay: ETIS - UMR 8051 - Equipes Traitement de l'Information et Systèmes - ENSEA - Ecole Nationale Supérieure de l'Electronique et de ses Applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université

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Abstract: The standard mean-variance approach can imply extreme weights in some assets in the optimal allocation and a lack of stability of this allocation over time. In order to not only improve the robustness of the portfolio allocation, but also to better control the portfolio turnover and the sensitivity of the portfolio to systematic risk, it is proposed in this chapter to introduce additional constraints on both the total systematic risk contribution of the portfolio and its turnover. Our chapter extends the existing literature on risk parity in three directions: (1) we consider other risk criteria than the variance, such as the value-at-risk (VaR), or the expected shortfall; (2) we manage separately the systematic and idiosyncratic components of the portfolio risk; (3) we introduce a set of portfolio management approaches which control the degree of market neutrality of the portfolio, for the strength of the constraint on systematic risk contribution and for the turnover

Keywords: α VaR risk measure; Distorsion risk; Idiosyncratic risk; Investment; Portfolio allocation; Portfolio management; Restrictions; Risk portfolios Systematic risk; Volatility risk (search for similar items in EconPapers)
Date: 2015
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Published in Risk-Based and Factor Investing, pp.123-146, 2015, ⟨10.1016/B978-1-78548-008-9.50005-8⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04515615

DOI: 10.1016/B978-1-78548-008-9.50005-8

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