Loading...

Asset Allocation Models with a Combined Risk Parity and Robust Optimization Approach

Enami, Iman | 2015

477 Viewed
  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 47672 (01)
  4. University: Sharif University of Technology
  5. Department: Industrial Engineering
  6. Advisor(s): Modarres Yazdi, Mohammad
  7. Abstract:
  8. Markowitz’s asset allocation model with mean-variance approach has well-known issues, amongst them are too much sensitivity to input parameters (especially asset returns) and portfolios that are not diversified well. In order to cope with these issues, risk parity approach has been suggested, which by omitting return parameter from the model, tries to balance portfolio’s risk among different assets. However, risk parity has not been appreciated by researchers due to ambiguity in the investor’s utility function, lack of a solid mathematical framework and its heuristic nature. This study, first tries to develop the mathematical theory of risk parity at the asset level and at the risk factors level based on previous researches and new findings. Then, several new asset allocation models are developed based on combining Markowitz approach with the risk parity approach; to address the issue of sensitivity to estimation of returns, worst case robust optimization approach is utilized. It is expected that portfolios derived from the new allocation models, retain the good property of Markowitz portfolios, i.e. a desirable trade-off between portfolio’s risk and return, and are at the same time well-diversified, with a fine out-of-sample performance, which is the property of risk parity portfolios. This expectation is tested and confirmed in the last part of this study, by simulating and comparing the performance of asset allocation models using two datasets from the global market
  9. Keywords:
  10. Asset Allocation ; Portfolio ; Robust Optimization ; Mean-Variance Method ; Markowitz Theory ; Risk Parity

 Digital Object List

 Bookmark

No TOC