# Questions tagged [black-litterman]

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### Risk Aversion Coefficient Literature Rationale and Sources

I'm running a Black-Litterman model and for the Risk Aversion Coefficient I have two potential formulas. The first is the standard formula which I believe is used in the original Black-Litterman ...
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### How can equilibrium weights be found for momentum factor in Black-Litterman model?

I have a momentum factor which consists of going long in three rising ETFs and going short in three falling ETFs. I want to use this factor as part of my portfolio for Black-Litterman model, however I ...
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### Portfolio construction for almost identical assets

The problem I am looking at concerns the treatment of almost identical assets in portfolio construction. Let us assume that we have two assets, both with a standard deviation $\sigma=0.2$ and a ...
• 1,779
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### For mean-variance portfolio optimization, shouldn't all the allocations sum to 1?

Reading a paper by Black and Litterman, I'm having trouble understanding the set of valid allocations in which we're trying to optimize expected returns. In Table III, the authors show two portfolios ...
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### Black-Litterman and Implied Market Returns

The first step in the Black-Litterman method is to find the "implied market returns" (the prior). Usually this is calculated as: $\Pi = \lambda \Sigma w$, where $\Pi$ is the vector of ...
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### Is an arbitrary prior for Black-Litterman valid? Or do we need a market implied one?

I went through The Black-Litterman Approach: Original Model and Extensions - see also. The BL approeach starts with a prior on the expected returns vector derived from the hypothesis that the market ...
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### What is the tau parameter in the Black-Litterman model?

Could someone please provide me with a clear and concise definition of the $\tau$ parameter in the Black-Litterman model? It seems one is rather hard to come by. I understand it to be the 'weight on ...
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