Mathematical Derivations and Practical Implications for the Use of the Black-Litterman Model

Posted: 22 Jun 2011

See all articles by Charlotta Mankert

Charlotta Mankert

Royal Institute of Technology (KTH) - Department of Industrial Economics and Management (INDEK)

Michael Seiler

College of William and Mary - Finance

Date Written: June 20, 2011

Abstract

In this article, the financial portfolio model often referred to as the Black-Litterman model is described, and then mathematically derived, using a sampling theoretical approach. This approach generates a new interpretation of the model and gives an interpretable formula for the mystical parameter, t, the weight-on-views. We then discuss practical implications of the model and explain how actual portfolio fund managers should arrive at model input values and what consideration must be weighted beforehand.

Keywords: Black-Litterman, weight-on-views, derivation

Suggested Citation

Mankert, Charlotta and Seiler, Michael, Mathematical Derivations and Practical Implications for the Use of the Black-Litterman Model (June 20, 2011). Journal of Real Estate Portfolio Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1868602

Charlotta Mankert

Royal Institute of Technology (KTH) - Department of Industrial Economics and Management (INDEK) ( email )

Stockholm, 100 44
Sweden

Michael Seiler (Contact Author)

College of William and Mary - Finance ( email )

VA
United States

HOME PAGE: http://mason.wm.edu/faculty/directory/seiler_m.php

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