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Risk Parity Optimization

In: Advanced Portfolio Optimization

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  • Dany Cajas

    (Orenji EIRL)

Abstract

This chapter explains the risk parity portfolio models that became popular after the great financial crisis in 2008 as a type of all weather portfolios. These types of portfolios, unlike return-risk trade-off models, split the risk among assets instead of splitting the budget among assets; for this reason these models are also called risk budgeting portfolio models. They are mainly used to aggregate several kinds of strategies because by their design they assign a weight to all assets and are not suited for a large number of assets. These models are more robust than classic return-risk trade-off portfolios because their optimal asset allocation is closer to the equally weighted portfolio than to the efficient frontier.

Suggested Citation

  • Dany Cajas, 2025. "Risk Parity Optimization," Springer Books, in: Advanced Portfolio Optimization, chapter 0, pages 277-306, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-84304-4_10
    DOI: 10.1007/978-3-031-84304-4_10
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