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The Black-Litterman Model in Detail

Jay Walters

Boston University - Metropolitan College - Department of Computer Science

July 12, 2011

This paper provides a clear and complete explanation of the Black-Litterman model. Drawing from the key papers in the literature it provides a complete derivation of the Black-Litterman model from Theil's Mixed Estimation Model as described in Black and Litterman's original paper. We then show the derivation from Bayesian Theory for comparison. We discuss several of the key papers from the literature. For each paper we provide a complete derivation and explanation of the results, along with a worked example where possible. Where relevant we compare the results from the various papers. The parameters of the model are considered along with information on their computation or calibration. Several methods of measuring or calibrating the results of the model are also presented.

Number of Pages in PDF File: 56

Keywords: quantitative portfolio management, asset allocation, black-litterman, mixed-estimation

JEL Classification: C11, G11

working papers series

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Date posted: January 28, 2009 ; Last revised: July 12, 2011

Suggested Citation

Walters, Jay, The Black-Litterman Model in Detail (July 12, 2011). Available at SSRN: http://ssrn.com/abstract=1314585 or http://dx.doi.org/10.2139/ssrn.1314585

Contact Information

Jay Walters (Contact Author)
Boston University - Metropolitan College - Department of Computer Science ( email )
United States
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References:  54
Citations:  7

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