SSRN Author: Nazar KostyuchykNazar Kostyuchyk SSRN Content
http://www.ssrn.com/author=2499375
http://www.ssrn.com/rss/en-usSat, 03 Dec 2016 04:28:52 GMTeditor@ssrn.com (Editor)Sat, 03 Dec 2016 04:28:52 GMTwebmaster@ssrn.com (WebMaster)SSRN RSS Generator 1.0New: Risk Parity Portfolios with Skewness Risk: An Application to Factor Investing and Alternative Risk PremiaThis article develops a model that takes into account skewness risk in risk parity portfolios. In this framework, asset returns are viewed as stochastic processes with jumps or random variables generated by a Gaussian mixture distribution. This dual representation allows us to show that skewness and jump risks are equivalent. As the mixture representation is simple, we obtain analytical formulas for computing asset risk contributions of a given portfolio. Therefore, we define risk budgeting portfolios and derive existence and uniqueness conditions. We then apply our model to the equity/bond/volatility asset mix policy. When assets exhibit jump risks like the short volatility strategy, we show that skewness-based risk parity portfolios produce better allocation than volatility-based risk parity portfolios. Finally, we illustrate how this model is suitable to manage the skewness risk of long-only equity factor portfolios and to allocate between alternative risk premia.
http://www.ssrn.com/abstract=2813384
http://www.ssrn.com/1530169.htmlFri, 23 Sep 2016 06:21:50 GMT