Black-Litterman Based Portfolio Optimization

Abstract

This article presents an example of portfolios optimized by AlternativeSoft's BL model based optimization with the following objectives:

- Minimize the portfolio volatility,

- Produce a well-diversified portfolio,

- Allow the investors to define their views (absolute as well as relative) on the funds' (mutual funds and hedge funds) expected returns,

- Tilt the portfolio from an equally weighted portfolio towards the funds with good future expected returns if the investors are condent about the future returns of these funds.

Keywords: Black-Litterman, Mean-Variance optimization, Mean-Conditional VaR optimization, Mean-Modified VaR optimization