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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

Attilio Meucci

ARPM - Advanced Risk and Portfolio Management

Date Written: August 8, 2008

Abstract

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

Meucci, Attilio, Enhancing the Black-Litterman and Related Approaches: Views and Stress-Test on Risk Factors (August 8, 2008). Available at SSRN: https://ssrn.com/abstract=1213323 or http://dx.doi.org/10.2139/ssrn.1213323

Attilio Meucci (Contact Author)

ARPM - Advanced Risk and Portfolio Management ( email )

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

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