communication: PORTFOLIO SELECTION: Risk budgeting and diversifi cation based on optimized uncorrelated factors
speaker: Romain Deguestspeaker: Attilio Meucci
speaker: Alberto Santangelo
abstract: We measure the contributions to risk of a set of factors, strategies, or investments, based on "MinimumTorsion Bets", namely a set of uncorrelated factors, optimized to closely track the factors used to allocate the portfolio. We then introduce a novel defin ition of contributions to risk, which generalizes the "marginal contributions to risk", traditionally used in banks for risk budgeting and in asset management to build risk parity strategies. The MinimumTorsion Bets allow us to also introduce a natural diversific ation score, the Effective Number of MinimumTorsion Bets, which we use to measure and manage diversific ation. We discuss the advantages of the MinimumTorsion Bets over the traditional approach to diversific ation based on marginal contributions to risk. We present two case studies, a securitybased investment in the stocks of the S&P 500, and a factorbased investment in the five FamaFrench factors.
timetable:
Thu 28 Jan, 11:00 - 13:00, Sala Stemmi
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