Network Risk Parity: graph theory-based portfolio construction

IF 1.5 Q3 BUSINESS, FINANCE
Vito Ciciretti, Alberto Pallotta
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引用次数: 0

Abstract

This study presents network risk parity, a graph theory-based portfolio construction methodology that arises from a thoughtful critique of the clustering-based approach used by hierarchical risk parity. Advantages of network risk parity include: the ability to capture one-to-many relationships between securities, overcoming the one-to-one limitation; the capacity to leverage the mathematics of graph theory, which enables us, among other things, to demonstrate that the resulting portfolios is less concentrated than those obtained with mean-variance; and the ability to simplify the model specification by eliminating the dependency on the selection of a distance and linkage function. Performance-wise, due to a better representation of systematic risk within the minimum spanning tree, network risk parity outperforms hierarchical risk parity and other competing methods, especially as the number of portfolio constituents increases.

Abstract Image

网络风险平价:基于图论的投资组合构建
本研究提出了网络风险平价,这是一种基于图论的投资组合构建方法,是对分层风险平价所使用的基于聚类的方法的深思熟虑的批判。网络风险平价的优势包括:能够捕捉证券之间一对多的关系,克服了一对一的限制;能够利用图论的数学知识,这使我们能够证明所得到的投资组合的集中度低于使用均值方差法得到的投资组合;能够通过消除对距离和联系函数选择的依赖来简化模型规范。从性能上看,由于在最小生成树中更好地表示了系统风险,网络风险平价优于分层风险平价和其他竞争方法,尤其是当投资组合成分的数量增加时。
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来源期刊
Journal of Asset Management
Journal of Asset Management BUSINESS, FINANCE-
CiteScore
4.10
自引率
0.00%
发文量
44
期刊介绍: The Journal of Asset Management covers:new investment strategies, methodologies and techniquesnew products and trading developmentsimportant regulatory and legal developmentsemerging trends in asset managementUnder the guidance of its expert Editors and an eminent international Editorial Board, Journal of Asset Management has developed to provide an international forum for latest thinking, techniques and developments for the Fund Management Industry, from high-growth investment strategies to modelling and managing risk, from active management to index tracking. The Journal has established itself as a key bridge between applied academic research, commercial best practice and regulatory interests, globally.Each issue of Journal of Asset Management publishes detailed, authoritative briefings, analysis, research and reviews by leading experts in the field, to keep subscribers up to date with the latest developments and thinking in asset management.Journal of Asset Management covers:asset allocation hedge fund strategies risk definition and management index tracking performance measurement stock selection investment methodologies and techniques portfolio management and weighting product development and innovation active asset management style analysis strategies to match client profiles time horizons emerging markets alternative investments derivatives and hedging instruments pensions economics
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