ABSTRACT
This chapter introduces risk parity as a portfolio construction process. In this sense, risk parity is not merely a particular portfolio or strategy-it is a unied principle to direct all types of investments, ranging from asset allocation, to individual asset classes, to factor-based portfolios or models. e possibility is limitless. In order to address fundamental questions regarding risk parity portfolios and real-world applications of the risk parity principle, it is imperative to have a basic understanding of the tenets of risk parity, as a quantitative investment process. To this goal, we here address three topics: risk, risk contribution, and risk parity investing.
