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

Attilio Meucci

ARPM - Advanced Risk and Portfolio Management

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

Meucci, Attilio, The Black-Litterman Approach: Original Model and Extensions (August 1, 2008). Shorter version in, THE ENCYCLOPEDIA OF QUANTITATIVE FINANCE, Wiley, 2010. Available at SSRN: https://ssrn.com/abstract=1117574 or http://dx.doi.org/10.2139/ssrn.1117574

Attilio Meucci (Contact Author)

ARPM - Advanced Risk and Portfolio Management ( email )

HOME PAGE: http://www.arpm.co/

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