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Fully Flexible Views: Theory and Practice

Attilio Meucci


August 8, 2008

Fully Flexible Views: Theory and Practice, Risk, Vol. 21, No. 10, pp. 97-102, October 2008

We propose a unified methodology to input non-linear views from any number of users in fully general non-normal markets, and perform, among others, stress-testing, scenario analysis, and ranking allocation. We walk the reader through the theory and we detail an extremely efficient algorithm to easily implement this methodology under fully general assumptions. As it turns out, no repricing is ever necessary, hence the methodology can be readily applied to books with complex derivatives. We also present an analytical solution, useful for benchmarking, which per se generalizes notable previous results. Code illustrating this methodology in practice is available through author's homepage.

Number of Pages in PDF File: 26

Keywords: Black-Litterman, stress-test, scenario analysis, entropy, opinion pooling, Bayesian theory, Kullback-Leibler, Monte Carlo simulations, importance sampling, fat-tails, median, regime shift, normal mixtures, multi-manager, skill, ranking, ordering information, option trading, macro views

JEL Classification: C1, G11

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Date posted: August 10, 2008 ; Last revised: December 6, 2010

Suggested Citation

Meucci, Attilio, Fully Flexible Views: Theory and Practice (August 8, 2008). Fully Flexible Views: Theory and Practice, Risk, Vol. 21, No. 10, pp. 97-102, October 2008. Available at SSRN: http://ssrn.com/abstract=1213325

Contact Information

Attilio Meucci (Contact Author)
SYMMYS ( email )
HOME PAGE: http://www.symmys.com
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