Application Of Risk Parity Model Based On CVaR In FOF Assets Allocation

FOF is generally referred to as fund of funds,and its underlying assets are generally funds.The core of FOF focuses on allocating the weights of funds,which is essentially to study how to make a secondary allocation between different investment strategies.Traditional assets allocation models are usually based on Markowitz theory,that is,to construct a portfolio according to the return,risk of each asset and the correlation between assets,in order to achieve the investment goal of maximizing the return under the same risk or minimizing the risk under the same return.This model is feasible in theory,but in practice it will encounter many problems,such as frequent violations of assumptions,the diff-iculty of estimating expected return and the emergence of extreme weights.Mean-variance model is also sensitive to the input values of parameters.The fluctuating portfolio weights will lead to reallocation problems,thus increasing transaction costs.The idea of the risk parity model is to achieve the basic equilibrium of risk contribution of all kinds of assets in the portfolio by adjusting the weights of the underlying assets.Compared with the traditional assets allocation model,the risk parity model considers the impact of asset volatility on the portfolio.Risk rebalancing strategy adjusts the contribution of different types of assets in portfolio,and adjusts the risk structure of portfolio dynamically:in real time,so that the risk exposure of the portfolio will not be concentrated in a single asset.Traditional asset allocation does not consider the difference of risk level of different asset classes,because different asset classes have different risk levels,and their risk contribution in the portfolio varies greatly.From the perspective of risk,traditional asset allocation model is not balanced.In the practice of risk management,more attention is paid to tail risk.VaR risk measurement method was originally proposed by JP Morgan.Artzner,Delbaen,Eber and Heath proved that VaR does not satisfy the sub-additivity and thus does not satisfy the concept of being a coherent risk measure.Follmer and Schied then proved that CVaR meets the definition of coherent risk measures.This paper comprehensively compares the performance of equal proportion portfolio,60/40 eqiuty-bond portfolio,volatility-based risk parity model and CVaR-based risk parity model,and compares these investment strategies in detail by calculating risk performance indicators such as yield,volatility,Sharp ratio and maximum withdrawal.From the empirical results,the CVaR parity portfolio controlling the maximum risk concentration has the minimum annual volatility,and has a larger Sharp ratio and Sotino ratio than the volatility parity portfolio;compared with the benchmark portfolio,the maximum withdrawal of the risk parity model is relatively low,and the CVaR parity model considering the risk concentration is more robust;The Sharp ratio of CVaR model is higher than that of volatility parity model.Compared with the general volatility parity model,CVaR risk parity model can effectively reduce the impact of extreme volatility of a single asset on the portfolio,thus achieving the goal of risk diversification and stable growth of portfolio value.