We will begin by discussing the risk parity portfolio selection problem, which aims to find portfolios for which the contributions of risk from all assets are equally weighted. The risk parity may be satisfied over either individual assets or groups of assets. We show how convex optimization techniques can find a risk parity solution in the nonnegative orthant, however, in general cases the number of such solutions can be anywhere between zero and exponential in the dimension. We then propose a nonconvex least-squares formulation which allows us to consider and possibly solve the general case.
Motivated by this problem we present several alternating direction schemes for specially structured nonlinear nonconvex problems. The problem structure allows convenient 2-block variable splitting. Our methods rely on solving convex subproblems at each iteration and converge to a local stationary point. Specifically, discuss approach alternating directions method of multipliers and the alternating linearization method and we provide convergence rate results for both classes of methods. Moreover, global optimization techniques from polynomial optimization literature are applied to complement our local methods and to provide lower bounds.