Risk Parity / Equal-risk contribution optimization

I am trying to implement the risk parity or ERC portfolio.

How can I implement the cyclical coordinate descent algorithm to solve the optimization as outlined by Roncalli in:

http://arxiv.org/pdf/1311.4057.pdf

thanks!

[ac]

Hi EM, did you managed to implement it?

Answer 1

[Yosef Bisk]

W := Nx1 vector of starting weights

Sigma := NxN matrix of co-variances

These two lines should do it.

f = @(W) var(W.*(Sigma*W))*10^14; %Note: The 10^14 is there to increase accuracy

ERC_weights = fmincon(f,W,[],[],ones(1,length(W)),1)