Risk budgeting and diversification based on optimised uncorrelated factors
Standard risk budgeting and risk parity use marginal risk contributions to attribute risk to the different instruments in a portfolio. Attilio Meucci, Alberto Santangelo and Romain Deguest introduce an alternative, natural, more general risk decomposition based on ‘minimum-torsion bets’, which uncovers the effective number of uncorrelated bets in a portfolio
In recent years, finance practitioners and academics have witnessed a surge in interest in two different, yet related, areas: risk budgeting, namely the fair attribution of the total risk of an enterprise to its different business lines (see a review and references in Tasche (2008)); and risk parity, namely investment in strategies that contribute equally to the total risk of the portfolio (see a
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Risk management
Banks upgrade liquidity tests to cope with volatile world
Risk Live: Greater need to assess modern threats from technology transformation
Enterprise Risk Benchmarking 2026: explore the data
View interactive charts from Risk.net’s 52-bank study, covering enterprise risk governance, appetite setting, board reporting, scenario analysis, culture and resilience
Continuous verification holds key to keeping AI on track
Decision-by-decision testing will help users trust AI judgement calls
Banks try to prepare for – not predict – geopolitical shocks
Risk Live: HSBC and KeyBank frameworks were tested by Iran attacks
Pioneers split over future of UK’s digitalised market
Tokenisation provider urges industry to stop waiting for magic to make digitally issued securities possible
Forward volatility: a model-free framework for hedging options risk
A model-free approach to extracting, hedging and managing forward volatility risk
What happens when AI gets good at your risk management job?
Risk executive Alex Golbin asks how to build a valuable career in risk as agentic AI takes on more analysis
ERM’s influence is growing as its ranks are shrinking
Risk Benchmarking: Mandates expanding to include new threats like AI and geopolitical risk, but majority report flat to down headcount
