266. MAD risk parity portfolios
Invited abstract in session WC-7: Optimization applications I, stream Optimization applications.
Wednesday, 10:05 - 11:20Room: M:I
Authors (first author is the speaker)
| 1. | Jacopo Maria Ricci
|
| Economia Aziendale, Università degli Studi Roma Tre | |
| 2. | Cagin Ararat
|
| Industrial Engineering, Bilkent University | |
| 3. | Francesco Cesarone
|
| Department of Business Studies, Roma Tre University | |
| 4. | Mustafa Pinar
|
| Department of Industrial Engineering, Bilkent University |
Abstract
In this paper, we investigate the features and the performance of the risk parity (RP) portfolios using the mean absolute deviation (MAD) as a risk measure. The RP model is a recent strategy for asset allocation that aims at equally sharing the global portfolio risk among all the assets of an investment universe. We discuss here some existing and new results about the properties of MAD that are useful for the RP approach. We propose several formulations for finding MAD-RP portfolios computationally, and compare them in terms of accuracy and efficiency. Furthermore, we provide extensive empirical analysis based on three real-world datasets, showing that the performances of the RP approaches generally tend to place both in terms of risk and profitability between those obtained from the minimum risk and the Equally Weighted strategies.
Keywords
- Linear and nonlinear optimization
- Convex and non-smooth optimization
- Multi- and many-objective optimization
Status: accepted
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