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Beyond Black-Litterman: Views on Non-Normal Markets

19 Pages Posted: 16 Nov 2005  

Attilio Meucci

ARPM - Advanced Risk and Portfolio Management

Date Written: November 2005

Abstract

We extend the Black-Litterman methodology to generic non-normal market distributions and non-normal views. We draw on the copula and opinion pooling literature to express views directly on the market realizations, instead of the market parameters as in the Black-Litterman case. We compare the two approaches and we show an application to a thick-tailed, skewed and highly dependent market, where the views are expressed as uncertainty ranges.

Keywords: opinion pooling, copula, views, fat tails, Bayesian prior, posterior, Monte Carlo, quantitative portfolio management, asset allocation, skew t distribution, CVaR, expected shortfall

JEL Classification: C11, G11

Suggested Citation

Meucci, Attilio, Beyond Black-Litterman: Views on Non-Normal Markets (November 2005). Available at SSRN: https://ssrn.com/abstract=848407 or http://dx.doi.org/10.2139/ssrn.848407

Attilio Meucci (Contact Author)

ARPM - Advanced Risk and Portfolio Management ( email )

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

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