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Robust Portfolio Allocation with Systematic Risk Contribution Restrictions


  • Serge Darolles

    () (Paris-Dauphine University and CREST)

  • Christian Gouriéroux

    () (CREST and University of Toronto)

  • Emmanuelle Jay

    (Quantitative Asset Management Laboratory)


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. To improve the robustness of the portfolio allocation, but also to better control for the portfolio turnover and the sensitivity of the portfolio to systematic risk, it is proposed in this paper to introduce additional constraints on both the total systematic risk contribution of the portfolio and its turnover. Our paper extends the existing literature on risk parity in three directions: i) we consider other risk criteria than the variance, such as the Value-at-Risk (VaR), or the Expected Shortfall; ii) we manage separately the systematic and idiosyncratic components of the portfolio risk; iii) we introduce a set of portfolio management approaches which control for the degree of market neutrality of the portfolio, for the strength of the constraint on systematic risk contribution and for the turnover

Suggested Citation

  • Serge Darolles & Christian Gouriéroux & Emmanuelle Jay, 2012. "Robust Portfolio Allocation with Systematic Risk Contribution Restrictions," Working Papers 2012-35, Center for Research in Economics and Statistics.
  • Handle: RePEc:crs:wpaper:2012-35

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    References listed on IDEAS

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    4. Kan, Raymond & Zhou, Guofu, 2007. "Optimal Portfolio Choice with Parameter Uncertainty," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(03), pages 621-656, September.
    5. Patrick Gagliardini & Christian Gouriéroux, 2011. "Approximate Derivative Pricing for Large Classes of Homogeneous Assets with Systematic Risk," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 9(2), pages 237-280, Spring.
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    12. Hiroshi Konno & Hiroaki Yamazaki, 1991. "Mean-Absolute Deviation Portfolio Optimization Model and Its Applications to Tokyo Stock Market," Management Science, INFORMS, vol. 37(5), pages 519-531, May.
    13. Bruder, Benjamin & Roncalli, Thierry, 2012. "Managing risk exposures using the risk budgeting approach," MPRA Paper 37246, University Library of Munich, Germany.
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    Cited by:

    1. Marius ACATRINEI, 2015. "Individual contributions to portfolio risk: risk decomposition for the BET-FI index," Computational Methods in Social Sciences (CMSS), "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences, vol. 3(1), pages 75-80, June.

    More about this item


    Asset Allocation; Portfolio Turnover; Risk Diversification; Minimum Variance Portfolio; Risk Parity Portfolio; Systematic Risk; Euler Allocation; Hedge Fund;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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