2022/10/03 by Avinash Bhardwaj, Bhardwaj, Avinash, Manjesh K Hanawal +3
Decision Sciences · Economics, Econometrics and Finance · #Computational Engineering #Economic theories and models #FOS: Computer and information sciences #Finance #Risk and Portfolio Optimization #Stochastic processes and financial applications #and Science (cs.CE)
paper · pdf · doi:10.48550/arxiv.2210.00969
openalex publication_date 2022/10/03 · openalex created_date 2022/10/06 · openalex updated_date 2026/07/28
In this paper, we revisit the portfolio allocation problem with designated risk-budget [Qian, 2005]. We generalize the problem of arbitrary risk budgets with unequal correlations to one that includes return forecasts and transaction costs while keeping the no-shorting (long-only positions) constraint. We offer a convex second order cone formulation that scales well with the number of assets and explore solutions to the problem in different settings. In particular, the problem is solved on a few practical cases - on equity and bond asset allocation problems as well as formulating index constituents for the NASDAQ100 index, illustrating the benefits of this approach.