7 votes
Accepted

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

Well there are two main things to consider here. Many implementation of Black-Litterman use the market portfolio and the ex post volatility and correlation structure to back out implied returns to ...
vanguard2k's user avatar
  • 2,914
5 votes
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Black-Litterman computation in R - where am I going wrong?

I had a quick look at your code and it seems like you are applying the inverse function incorrectly in your calculations. For example, in the ...
AK88's user avatar
  • 1,830
4 votes
Accepted

black litterman for rebalancing

There are some technical problems with using your previous weights as priors (that is, they are point measures), but yes, the Black-Litterman framework is suitable for this. You can essentially ...
Forgottenscience's user avatar
4 votes
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Struggling with tau in Black-Litterman

Your statement about the properties of $\tau$ is correct. $\tau$ is a measure of uncertainty. I think the problem you are having is because in most practical situations nobody really knows what values ...
Tim Wilding's user avatar
  • 1,396
3 votes
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Market Capitalisation Weights for Black-Litterman portfolio

Do not use the capitalizations of the ETFs, they hold a small and variable proportion of the securities outstanding. Instead base your weights on the papers by Swinkels et al. which have tried to ...
nbbo2's user avatar
  • 10.6k
3 votes

How to calculate market capitalization weights for a currency portfolio?

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 ...
AlRacoon's user avatar
  • 5,652
3 votes
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Implied Equilibrium Returns Example

It's because the model assumes that the market will maximize its Sharpe ratio and your weights don't do that. Essentially, your example assumes investors are irrational in their allocation. If you ...
Kalev Maricq's user avatar
3 votes
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Black-Litterman model with only positive weights

The problem is not Black-Litterman. B-L aims at finding an estimation of expected return based on a prior objective and some views. The prior is based on market neutral portfolio composition (or your ...
Luigi87's user avatar
  • 326
3 votes
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How to generate the views in Black-Litterman model?

Any potential source of "alpha" would suffice, in fact. And your research would be research of how this "alpha" source is able to produce alpha. On my mind, candidates could be (1) some well-...
Alexander Didenko's user avatar
2 votes

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

This issue is dealt in detail in Atillio Meucci's paper titled Fully Flexible Views: Theory and Practice. See Appendix A.4.
user1590123's user avatar
2 votes

Can Black-Litterman-type expected return estimation be used for regional ETFs?

Under the logic of the CAPM, the equation $\operatorname{E}[R_i - R_f] = \beta_i \operatorname{E}[R_m - R_f]$ would hold for any return, whether it's a stock return, bond return, portfolio return, ...
Matthew Gunn's user avatar
  • 6,864
2 votes
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relation between risk averson coefficient and maximum Sharp ratio in Black-Litterman context

Solving it algebraically: As seen in the above provided reference (just above " 1) "), the general formulation for the unconstrained Markowitz portfolio optimization scheme, is given by: \...
Pleb's user avatar
  • 4,156
2 votes

Black-Litterman Weights Don't Change for Assets Without Views

So, in short, you've told BL that Exxon sucks, but you haven't specified the same for Chevron or Conoco! So the model sells XOM, but maintains the longs in the others given the more attractive pairs-...
demully's user avatar
  • 5,001
1 vote
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Portfolio construction for almost identical assets

The approach that I eventually adopted to meet this criterion is, as I subsequently found out, close in spirit to the approach in Turnover Minimization: A Versatile Shrinkage Portfolio Estimator. As ...
Hans-Peter Schrei's user avatar
1 vote

Black-Litterman Weights Don't Change for Assets Without Views

Is there a way to specify BL such that asset classes without views have flexible weights? Black-Litterman has uncertainties on its views as well, so if you increase uncertainties for some highly ...
Brian B's user avatar
  • 14.6k
1 vote

Black-Litterman model - Unable to obtain correct implied weight from implied returns

This is a good resource for calculation of BL in Python, personally I find that Excel isn't great for this sort of thing. https://medium.com/analytics-vidhya/black-litterman-model-for-asset-allocation-...
Kareem Sayed's user avatar
1 vote
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Covariance Shrinkage in Black-Litterman Framework

Yes all you have to do is estimate the Black Litterman covariance matrix that includes investor views using a shrinkage estimator. Covariance shrinkage like Ledoit Wolf is an old technique, however, ...
develarist's user avatar
  • 2,970
1 vote

Rationale for likelihood function parameter choice in Black-Litterman model?

Since you add the bayes-theory tag here I'm gonna speak in bayesian interpretation; I'd say it's just because this is the simplest way to obtain the distribution of prior; A better way to do this is ...
numerairX's user avatar
  • 609
1 vote

Black-Litterman risk aversion

intuitively BL works as assuming return (can be factor return defined in APT model or return over some interval) follows normal distribution with mean $E$ and variance $V$, we want to infer such mean ...
numerairX's user avatar
  • 609
1 vote

CVXPY 's constrains doesn't work

You forgot to include constraints as a parameter to the call to Problem.
Bob Jansen's user avatar
  • 8,436
1 vote
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Can I formulate a general relative view in Black-Litterman?

Indeed I think you can, but it comes at a price. To be clear: Neither have I done this myself nor have I attempted it. The main idea is typical Bayesian: In computing the posterior return parameters ...
vanguard2k's user avatar
  • 2,914

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