Black-Litterman approach 发表评论(0) 编辑词条

The Black and Litterman approach is introduced to make portfolio optimization more useful in practical investment situations. It is an asset allocation model published by Fisher Black and Robert Litterman in 1991. (Wikipedia, 2007, http://en.wikipedia.org/wiki/Black-Litterman_model ).The BL Model combines Capital Asset Pricing Model (CAPM) and Harry Markowitz’s mean-variance optimization theory; and tries to solve the problem of negative portfolio weights, especially in situations where managers cannot take short positions (Palomba, G. Multivariate GARCH models and the Black-Litterman approach for tracking error constrained portfolios: an empirical analysis. Global Business and Economics Review, 10(March), pp 379-413.).

The main benefit of the BL model is that it allows the portfolio manager to avoid certain problems about a set of expected returns inherent in Markowitz’s mean-variance optimization (1952) framework (Investopedia, 2007, http://www.investopedia.com/terms/b/black-litterman_model.asp)  Additionally, the BL approach can blend a variety   of views, and generate an absolute and relative posterior estimate which includes all the views.

Black-Litterman approach

The Black and littermanapproach provides an initial solution to the optimization problem. It is composed of two parts:

Step 1: What does the market think? It assumes that the benchmark is optimal and derives the expected returns of each asset under this assumption.

Step 2: Incorporationg investor opinions.  In shows how to incoporate these opinions into the optimization procedure. This also is a critical part to adjust all asset returns for an investor's opinion about any return.