The research chair, 'Risk Allocation Solutions', will run for three years and will seek to develop academic insights for the “design of high-performance multi-asset investment solutions”.
Professor Lionel Martellini, scientific director of EDHEC-Risk Institute, said, “In the face of recent crises, asset allocation decisions appear as the main source of added value by the investment industry.
With the support of Lyxor Asset Management, we very much look forward to advancing research in the different areas covered by this new research chair and assessing the superiority in various economic regimes of conditional risk parity strategies with respect to standard static risk parity techniques.”
The project's research team, led by EDHEC-Risk Institute's Martellini, will comprise Vincent Milhau, EDHEC's deputy scientific director, as well as Nicolas Gaussel, CIO of Lyxor and Thierry Roncalli, Lyxor's head of quantitative research.
In the first year of the research project, the team will focus on “the next generation of risk parity” and its weakness in so far as its lack of explicit sensitivity to changes in economic conditions.
The project will look to develop a dynamic risk allocation approach incorporating the extending of standard risk budgeting techniques to time-varying equity and bond volatility levels; extending standard risk budgeting techniques to downside risk measures with an asymmetric response to decreases in bond yield levels; and extending standard risk budgeting techniques to mean-reverting risk premia for equity and bond markets.
Thierry Roncalli, head of quantitative research at Lyxor Asset Management said, “The risk parity approach colours many of the investment strategies on equities, bonds and multi-asset classes in Lyxor.
“Extending the risk parity approach by taking into account economic changes and the dynamics of risk premia is today a challenge to better manage multi-asset portfolios.”