# Questions tagged [black-litterman]

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### Market weights for Black-Litterman

I'm trying to implement Black-Litterman for an arbitrary selection of assets. One of the input for BL is the "Equilibrium market capitalization weights for each asset". In most examples I've seen, ...
975 views

### Black-Litterman: Why should the views be independent of each other?

This question relates to this question. In the Black-Litterman framework views of inverstors on the market are modelled. These views have a covariance-matrix $\Omega$. I always found it quite ...
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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 ...
2k views

### Black-Litterman, how to choose the uncertainty in the views $\Omega$ for smooth transitions from prior to posterior

In Black-Litterman we get a new vector of expected returns of the form: \begin{align} \Pi_{BL} = \Pi + \underbrace{\tau \Sigma P^T[P\tau\Sigma P^T+\Omega]^{-1}}_{\text{correction}}[Q-P\Pi] \end{align} ...
879 views

### Is it possible to deal with non-normal distribution in Black-Litterman model?

Suppose that I know that the normality assumption about my data is unrealistic (as it is very frequently): is it possible to apply any distribution that I judge the right one to the Black-Litterman ...
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### Struggling with tau in Black-Litterman

According to the omega formula in B-L tau is used in the Omega estimation to determine the degree of uncertainty given to views of the investor: So, if tau is given a low value then the inverse of ...
423 views

### black litterman for rebalancing

I've noticed in my backtests that "shrinking" the expected returns vector towards zero tends to improve the performance. This has led me to investigate shrinkage methods for the forecasts/expected ...
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### Implied Equilibrium Returns Example

I've been trying to work through a simple example using A Step-by-Step Guide to the Black Litterman Model, but I'm having trouble understanding implied risk aversion. Say I have two uncorrelated ...
351 views

### Black Litterman: Is it possible to have multiple views (from different sources) on the same asset?

From the basics of Black Litterman I understand that each view on a stock is implemented via the pick matrix P with the expected value of the views in Q. I have read several papers where each stock ...
302 views

### Systematic Views in Black-Litterman?

Are there any literature on selecting systematic views for Black-Litterman along with methods to specify the uncertainty parameter? For example, rather than specifying a portfolio manager's subective ...
537 views

### Black-Litterman computation in R - where am I going wrong?

I am trying to compute a small Black Litterman model in R. I am following a Youtube video and translating the excel implementation in R. I have a var cov S matrix ...
206 views

### How to calculate market capitalization weights for a currency portfolio?

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.