Publication: Second-Order Risk of Alternative Risk Parity Strategies
Second-Order Risk of Alternative Risk Parity Strategies
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Leippold, M., Bernardi, S., & Lohre, H. (2020). Second-Order Risk of Alternative Risk Parity Strategies. Journal of Risk, 21(3), 1–25. https://doi.org/10.21314/JOR.2018.401
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The concept of second-order risk operationalizes the estimation risk induced by model uncertainty in portfolio construction. We study its contribution to the realized volatility of recently developed alternative risk parity strategies that invest in an uncorrelated decomposition of the asset universe. For each strategy, we derive closed-form solutions for the second-order risk, subsequently illustrated in empirical analysis based on real market data. Our results suggest a relation between the contribution of second-order risk and the
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- Bernardi, Simone
- Lohre, Harald
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Leippold, M., Bernardi, S., & Lohre, H. (2020). Second-Order Risk of Alternative Risk Parity Strategies. Journal of Risk, 21(3), 1–25. https://doi.org/10.21314/JOR.2018.401
