I am implementing Black-Litterman optimization on a currency portfolio and I could not calculate market capitalization weights for currencies.
Please give me some suggestion.
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Currency indices will require some base currency from which the other currencies weights will be determined. Also, the weights are determined as of some point in time and frequency, and are based on some economic statistic, such as the share of international trade, that reflects their relative importance in the global economy. Other possibilities could be GDP weighted; global market cap weighted, etc.
Another point to consider is that when you use the actual international securities in portfolio optimization/construction, these international assets will also provided currency exposure, as well as their relative importance in the global economy.