The Black-Litterman Approach: Original Model and Extensions
Shorter version in, THE ENCYCLOPEDIA OF QUANTITATIVE FINANCE, Wiley, 2010
17 Pages Posted: 8 Apr 2008 Last revised: 13 Oct 2010
Date Written: August 1, 2008
Abstract
We walk the reader through the Black-Litterman approach, providing all the proofs. We show how minor modifications of the original model greatly improve its range of applications. We discuss full generalizations of this and related models. MATLAB code is available through MATLAB Central
Keywords: estimation risk, shrinkage estimation, decision theory
JEL Classification: C1, G11
Suggested Citation: Suggested Citation
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