Quantitative Allocation Strategies: Risk Budgeting, Risk Parity, and TAA
Free CAIA Level II lesson in Asset Allocation. 35 min read, ~5,248 words.
Core-satellite layers a diversified, defensive core (risk aversion, downside protection) beneath a concentrated, aggressive satellite (risk seeking, upside). Risk budgeting sets a risk measure, fills risk buckets, and only constrains the portfolio; pair it with an objective function to get a unique solution. Risk parity equalizes each asset's marginal contribution...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
Learning objectives
- mvo process
- mvo implementation
- mvo multiple risky
- mvo issues
- mvo adjustments
- mvo estimation error
- tpa overview
- tpa defining
- tpa governance
- tpa factor lens
- tpa competition capital
- tpa culture
- tpa implementing
- core satellite
- top down bottom up
- risk budgeting
- factor risk budgeting
- risk parity
- other quant strategies
- taa
- taa process
- cash commitments illiquidity
- liquid alternatives
- lp direct investment
- co investments
- co investment returns
- secondary market pe
- gp led secondaries
- rebal buy hold constant mix
- rebal directional
- rebal cppi
- rebal obpi
- rebal dynamic illiquid
- rebal costs
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