Enhancing the Black-Litterman and Related Approaches: Views and Stress-Test on Risk Factors
11 Pages Posted: 10 Aug 2008 Last revised: 11 Oct 2010
Date Written: August 8, 2008
The Black-Litterman and related approaches modify the return distribution of a normally distributed market according to views or stress-test scenarios. We discuss how to broaden the range of applications of these approaches significantly by letting them act on the risk factors underlying the market, instead of the returns of the securities.
Keywords: scenario analysis, option trading, views on macro factors, non mean-variance optimization
JEL Classification: C1, G11
Suggested Citation: Suggested Citation