Research On Optimization Of Risk Parity Strategies For Large-scale Assets

Since the 2008 financial crisis,risk parity strategy is more and more popular.Due to the excellent performance of Bridgewater fund,investors and scholars began to pay more attention to the risk parity strategy.The asset allocation strategy based on risk parity model has become one of the main methods of general asset allocation strategy.This paper selects 17 types of assets from domestic and foreign stock markets,domestic bond markets and commodity markets to construct the asset pool.This paper optimizes the risk parity model and builds the asset allocation strategy based on the optimized model.Different from the risk parity model,this paper uses the principal component analysis method to recombine the assets.It can reduce the impact of the correlation between assets on the model.It can realize the goal of equal risk contribution in a completely orthogonal space.Through theoretical and empirical analysis,it is found that the risk parity model repeats the allocation of highly correlated assets.But the principal component risk parity model allocates only one of these assets.It means that the principal component risk parity model has the function of asset screening.Since portfolio managers sometimes need to add constraints on asset weights,such as setting a minimum investment weight or setting a threshold for asset allocation,this paper introduces a risk budget model with constraints on the basis of risk parity model.Through empirical analysis,it is found that the asset allocation strategy based on the risk budget model is better than the risk parity model.This strategy can guarantee the return on the premise of meeting the needs of investors and has certain optimization effect.At present,most literatures used historical data to estimate input parameters when studying risk parity strategies,which implied the assumption that the market style would remain unchanged for one year.Based on the idea of the short-term momentum of an asset,this paper tries to apply the short-term momentum effect of assets to the estimation of covariance.We use the attenuation weighting method to estimate the expected risk of assets.Then we use the improved covariance to build the risk parity model,the principal component parity model and the risk budgeting model.Uses these models to build asset allocation strategies.Through empirical research,the yields and volatilities of the asset allocation strategies built by the improved risk parity model and the improved risk budgeting model have been improved.The return rate of the asset allocation strategy based on the improved risk budgeting model is significantly increased and the volatility is reduced.Although the return rate of the improved principal component risk parity model decreases slightly,the volatility has been significantly improved.The risk of the portfolio has been effectively controlled.It is feasible to introduce the method of expected risk estimation in the aspect of strategy optimization.It provides investors with new ideas on asset allocation from the risk.