A Step-By-Step Guide to the Black-Litterman Model Incorporating User-specified Confidence Levels

Idzorek, Thomas M.

doi:10.2139/ssrn.3479867

Cited by 20 publications

(27 citation statements)

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“…It is well known that the Modern Portfolio Theory framework has serious practical problems such as extreme input sensitivity, estimation error maximization, and highly concentrated portfolios (Best and Grauer 1991;Michaud 1989;Idzorek 2005). Therefore, in practice, all components of the original Markowitz Mean-Variance Optimization method (Markowitz 1952(Markowitz , 1959 are modified, substituted, and/or complemented by various methods.…”

Section: Multidimensional Improvement Of Modern Portfolio Theorymentioning

confidence: 99%

“…3. The methods used to derive the expected returns thus include not only historical averages, which are rarely applied due to high variability and data dependence (Best and Grauer 1991;Michaud 1989;Idzorek 2005), but also the Black-Litterman model Litterman, 1990, 1991), the Gordon growth model (Gordon, 1959), and CAPM returns (Sharpe 1964). The risk measures include not only the standard deviation, but also value at risk (VaR) and conditional value at risk (CVaR).…”

Section: Multidimensional Improvement Of Modern Portfolio Theorymentioning

confidence: 99%

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Robo Advisors: quantitative methods inside the robots

Beketov¹,

Lehmann²,

Wittke³

2018

J Asset Manag

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Robo Advisors (RAs) are perhaps the most important disruptive trend in wealth and asset management today. There is an immense amount of information about RA systems, but still little is known about the core portfolio optimization and asset allocation methods applied within such systems. Thus, to date, there is no comprehensive analysis of the methods used in RAs, their occurrences in these systems, the respective volumes of assets under management (AuM), and the future methodological prospects of the RAs. We analyzed 219 existing RAs worldwide and showed that Modern Portfolio Theory remains the main framework used in RAs. The current trend is to improve and augment this framework rather than applying and developing entirely new approaches. However, we also revealed that the AuM volumes tend to be higher for the systems applying newer and more sophisticated methods. In general, there is a clear gap between the predominant methods applied in RAs and new methodological developments. In the future, as the RA services mature, we can expect that the RAs system will adopt many of the new approaches since they promise good performance and have certain marketing potential.

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Section: Multidimensional Improvement Of Modern Portfolio Theorymentioning

confidence: 99%

Section: Multidimensional Improvement Of Modern Portfolio Theorymentioning

confidence: 99%

Robo Advisors: quantitative methods inside the robots

Beketov¹,

Lehmann²,

Wittke³

2018

J Asset Manag

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show abstract

“…BL model uses Bayesian approach to syndicate the views from the investor with respect to the expected returns of one or more assets with the market equilibrium vector of expected returns to provide a new, mixed estimate of expected returns. The new vector of returns results to intuitive portfolio and give a reasonable portfolio weight [7]. Hence, the model produces better stable result than classical mean-variance optimization.…”

Section: Literature Reviewmentioning

confidence: 96%

Optimal risk computation on precious metal’s assets diversification

Jayeola

Sufahani

Ismail

et al. 2018

IJET

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Optimization is the selection of a best element with regards to certain criterion from set of available alternatives. This paper investigates the effects of assets in optimizing risk using diversification strategy and also examines gold quality of hedging and safe haven. The reduction strength of assets is estimated. Hence, it is observed that gold exhibits highest risk reduction strength. Also it is noticed that gold acts as hedge and safe haven for investors during economic recession.

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“…Black-Litterman kullanılarak hesaplanan nihai getirilerin temel denklemi aşağıdaki gibi gösterilmektedir. (Idzorek, 2005).…”

Section: Black-litterman Modeli̇unclassified

Si̇gorta Şi̇rketleri̇ İçi̇n Black-Li̇tterman Modeli̇ Çerçevesi̇nde Opti̇mal Portföy Seçi̇mi̇

Özel¹

2019

jisr

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Black ve Robert Litterman tarafından 1990 yılında geliştirilen Black-Litterman modeli, yatırımcı beklentilerini optimal portföy seçim sürecine dahil edilmesini olanak sağlayan bir modeldir. Black-Litterman modeli ile yatırımcıların bir veya birden fazla varlığın getirileri hakkındaki beklentileri ile piyasa getirileri birleştirilerek, yeni nihai getiri beklentileri hesaplanmaktadır. Bu çalışmada BIST100'de işlem gören beş sigorta şirketinin getirileri kullanılmış ve bu veri setine Black-Litterman modeli uygulanmıştır. Araştırmada öncelikle Sermaye Varlık Fiyatlandırma Modeli (SVFM)'ne göre piyasa getirileri ve getirilere bağlı olarak varlıkların ağırlıkları hesaplanmıştır. Buradan elde edilen sonuçlar kullanılarak ters optimizasyon yöntemi ile denge getirileri hesaplanmıştır. Elde edilen denge getirilerine bağlı olarak yatırımcı beklentileri belirlenmiş ve bu beklentilerin belirsizlikleri hesaplanmıştır. Black-Litterman modeli kullanılarak elde edilen nihai getiriler elde edilmiş ve portföy ağırlıkları revize edilmiştir. Elde edilen sonuçlar, yatırımcı beklentileri ile aynı yönde gerçekleşmiş ve tahmin edilen varlıkların portföydeki ağırlıklarında artış meydana gelmiştir.

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A Step-By-Step Guide to the Black-Litterman Model Incorporating User-specified Confidence Levels

Cited by 20 publications

References 0 publications

Robo Advisors: quantitative methods inside the robots

Robo Advisors: quantitative methods inside the robots

Optimal risk computation on precious metal’s assets diversification

Si̇gorta Şi̇rketleri̇ İçi̇n Black-Li̇tterman Modeli̇ Çerçevesi̇nde Opti̇mal Portföy Seçi̇mi̇

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