PT  - JOURNAL ARTICLE
AU  - Jan Bertus Molenkamp
TI  - Risk Allocation Under Shortfall Constraints
AID  - 10.3905/jpm.2004.319929
DP  - 2004 Jan 31
TA  - The Journal of Portfolio Management
PG  - 46--52
VI  - 30
IP  - 2
4099  - https://pm-research.com/content/30/2/46.short
4100  - https://pm-research.com/content/30/2/46.full
AB  - Risk budgeting interpreted as efficient portfolio allocation is often based on expected outperformance, alpha or information ratio. Once this crucial input has been estimated, it is frequently treated as fully reliable. One can use historical measures to develop some sense, both theoretical and practical, of the extent of the uncertainty and use a model to characterize the uncertainty of the expected active returns. Examples demonstrate the potential impact of uncertain parameters. The model is said to be widely applicable, easy to implement, and useful in making an optimal risk allocation at different levels of investment strategy.