Risk Parity Portfolio Optimization Based on CVaR
Subject Areas : New scientific findings in the fields of innovation and entrepreneurshipSeyed javad Pourhoseini 1 , sayyed mohammad reza davoodi 2 , Mansour Momeni 3
1 - PhD student in industrial Management, financial Resources, Dehaghan Branch, Islamic Azad University, Dehaghan , Iran
2 - Associate Professor, Department of Management, Dehaghan Branch, Islamic Azad University Dehaghan, Iran
3 - Professor, Department of Management, Tehran University, Tehran, Iran
Keywords: Conditional Value at Risk, Eulers's Theorem, Homogeneous Function, Risk Parity Portfolio.,
Abstract :
Risk parity is one of the stock portfolio selection models that has received much attention after the American financial crisis in 2008. The philosophy of this model is to allocate the risk of the portfolio to the same extent among its constituent assets. Conditional value at risk is one of the popular and common measures of risk measurement in finance, which measures the mathematical expectation of loss of a stock portfolio for values beyond a threshold value and at a known confidence level and time horizon. The aim of the current research is to design and optimize the performance of the risk parity stock portfolio model with the criterion of conditional risk value. There are different approaches in modeling optimal portfolio selection that use different criteria and methods to calculate and estimate returns and risks. Various criteria have been proposed to measure risk in finance, each of which has its own advantages and disadvantages. One of the criteria that has been introduced with the aim of reducing the disadvantages of the common and popular measure of value at risk is the conditional value at risk or expected drop, which is used as a measure of risk in the present study. Conditional value at risk measures the average loss of the portfolio for cases where the amount of loss exceeds value at risk
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