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Jul 22, 2020 at 4:35 comment added nbbo2 Mr. Chan: that is a shortcut that works in case the covariance matrix is diagonal, it is not the general ERC which takes into account off-diagonal elements. Using this shortcut is sometimes called "naive risk parity" because you are not taking into account correlations only variances.
Apr 23, 2020 at 3:50 comment added Palace Chan @SRKX if OP merely wants risk parity/ERC, does it not suffice to simply do $b=1/n$ then $w = \sqrt(b) / \sqrt(diag(\Sigma))$ with $w$ then normalized to sum to 1? It looks like that is all the R package referenced below is doing in the first 6 lines of code: github.com/dppalomar/riskParityPortfolio/blob/master/R/…
Dec 7, 2016 at 22:44 comment added Nicholas Also, does the optimization problem have any constraint like $\sum_{i=1}^{n} w_i = 1$?
Dec 7, 2016 at 22:21 comment added Nicholas What is the reason that the risk contribution of each asset is defined as its weight times corresponding marginal contribution? It makes sense to me that marginal contribution describes how fast total risk changes if the asset's weight changes a small amount. But partial derivative times weight is not intuitive to me when it's used to describe risk contribution, though noting that the sum (and here it happens to be $\sigma(w)$) is directional derivative in mathematics. Any intuition behind this definition?
Aug 7, 2016 at 13:31 vote accept Karamos
Aug 7, 2013 at 14:21 history edited SRKX CC BY-SA 3.0
fixing optimization target
Aug 7, 2013 at 13:57 review Suggested edits
Aug 7, 2013 at 14:19
Mar 29, 2012 at 6:09 comment added SRKX @nxstock-trader: you should be able to find something on this page. I haven't used R for optimization for a long time. You can ask on Mathematics or Stack Overflow as well.
Mar 29, 2012 at 1:01 comment added nxstock-trader I meant what packages/routines to use if I were doing this in R?
Mar 28, 2012 at 22:13 comment added SRKX You can basically run this through fmincon in MATLAB for example. Not sure what you mean by "techniques". Are you looking for a specific optimization algorithm?
Mar 28, 2012 at 22:09 comment added nxstock-trader Can you explain what techniques are needed to run that optimization?
Mar 23, 2012 at 7:10 history answered SRKX CC BY-SA 3.0