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Electronic copy available at: version: July 2012 Efficient Algorithms for Computing Risk Parity Portfolio Weights Denis B. Chaves* Jason C. Hsu Research Affiliates, LLC Research Affiliates, LLC UCLA Anderson School of Business Feifei Li Omid Shakernia Research Affiliates, LLC Research Affiliates, LLC Abstract This paper presents two simple Algorithms to calculate the Portfolio weights for a risk Parity strategy, where asset class covariance information is appropriately taken into consideration to achieve true equal risk contribution. Previous implementations of risk Parity either (1) used a na ve 1/vol solution, which ignores asset class correlations, or (2) computed true risk Parity weights using relatively complicated optimizations to solve a quadratic minimization program with non-linear constraints.
Computing Risk Parity Portfolio Weights ... In this paper, we do not make an attempt to argue that the risk parity approach is ... (2009), which are product provider white papers discussing their respective risk parity strategies. 2 compute an equal risk contribution portfolio. We adopt Maillard, Roncalli and Teiletche (2010)s equal risk ...
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