Publications

Authors:

DI PERSIO, Luca; Garbelli, Matteo; Mottaghi, Fatemeh; Wallbaum, Kai

Title:

Volatility forecasting with hybrid neural networks methods for Risk Parity investment strategies

Year:

2023

Type of item:

Articolo in Rivista

Tipologia ANVUR:

Articolo su rivista

Language:

Inglese

Format:

A Stampa

Referee:

Sì

Name of journal:

EXPERT SYSTEMS WITH APPLICATIONS

ISSN of journal:

0957-4174

N° Volume:

229

Page numbers:

120418-120432

Keyword:

Volatility; Forecast; Time series; Neural Networks; Risk Parity; Finance; Neural Networks

Short description of contents:

We present a hybrid method for computing volatility forecasts that can be used to implement a risk-controlled strategy for a multi-asset portfolio consisting of both US and international equities. Recent years have been characterized by extremely low yields, with 2022 marked by rising interest rates and an increasing inflation rate. These factors produced new challenges for both private and institutional investors, including the need for robust forecast methods for financial assets' volatilities. Addressing such task, our research focuses on a hybrid solution that combines classical statistical models with specific classes of Recurrent Neural Networks (RNNs). In particular, we first use the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) approach within the preprocessing phase to capture volatility clustering, striking an efficient balance between computational effort and accuracy, to then apply RNN architectures, namely GRU, LSTM, and a mixed model with both units, as to maximize performances of volatility forecasts later used as input factors for risk-controlled investment strategies. In terms of portfolio allocation, we focus on a simplified version of the Risk Parity method that was first proposed by the Research division of S&P Global. This version ignores the contribution of cross-correlations among assets, nevertheless providing encouraging results. Indeed, we show the effectiveness of the chosen approach by providing forward-looking risk parity portfolio strategies that outperform standard risk/return portfolio structures.

Web page:

https://www.sciencedirect.com/science/article/abs/pii/S095741742300920X 1

Product ID:

135292

Handle IRIS:

11562/1105826

Last Modified:

September 19, 2023

Bibliographic citation:

DI PERSIO, Luca; Garbelli, Matteo; Mottaghi, Fatemeh; Wallbaum, Kai, Volatility forecasting with hybrid neural networks methods for Risk Parity investment strategies «EXPERT SYSTEMS WITH APPLICATIONS» , vol. 229 , 2023 , pp. 120418-120432

Consulta la scheda completa presente nel repository istituzionale della Ricerca di Ateneo