Beyond Black-Litterman in Practice: A Five-Step Recipe to Input Views on Non-Normal Markets
15 Pages Posted: 29 Dec 2005
Date Written: May 2006
The copula-opinion pooling (COP) approach extends in principle the Black-Litterman methodology to non-normally distributed markets and views. However, the implementations of the COP framework presented so far rely on restrictive quasi-normal assumptions. Here we present a general recipe to implement the COP approach in practice under all possible market and views specifications.
Keywords: opinion pooling, views, copula, skewness, fat tails, Bayesian prior, posterior, Monte Carlo, quantitative portfolio management, asset allocation, CVaR, expected shortfall, Student t copula, non-parametric estimation
JEL Classification: C11, G11
Suggested Citation: Suggested Citation