Risk mitigation strategies seek to create an asymmetric risk-return profile. But benchmarking against the underlying investment is not a valid approach given the potentially stark difference in risk profiles. We discuss how to appropriately calibrate and assess portfolio insurance strategies...

We investigate a new way of equity portfolio selection that provides maximum diversification along the uncorrelated risk sources inherent in the S&P 500 constituents. This diversified risk parity strategy is distinct from prevailing risk-based portfolio construction paradigms. Especially, the...

Striving for maximum diversification we follow Meucci (2009) in measuring and managing a multi-asset class portfolio. Under this paradigm the maximum diversification portfolio is equivalent to a risk parity strategy with respect to the uncorrelated risk sources embedded in the underlying...

The concept of second-order risk operationalizes the estimation risk in portfolio construction induced by model uncertainty. We study its contribution to the realized volatility of recently developed risk parity strategies. For each strategy, we derive closed-form solutions for the second-order...

The 2015 Paris Agreement is a landmark in limiting emissions and targeting global warming well below 2, preferably 1.5, degrees Celsius compared to pre-industrial levels. In this light, we investigate how to efficiently construct equity portfolios that help mitigating climate change risk but at...

We investigate portfolio diversification strategies based on hierarchical clustering. These hierarchical risk parity strategies use graph theory and unsupervised machine learning to build diversified portfolios by acknowledging the hierarchical structure of the investment universe. In this...

We forecast portfolio risk for managing dynamic tail risk protection strategies, based on extreme value theory, expectile regression, Copula-GARCH and dynamic GAS models. Utilizing a loss function that overcomes the lack of elicitability for Expected Shortfall, we propose a novel Expected...