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Beyond Black-Litterman in Practice: A Five-Step Recipe to Input Views on Non-Normal Markets

15 Pages Posted: 29 Dec 2005  

Attilio Meucci

ARPM - Advanced Risk and Portfolio Management

Date Written: May 2006

Abstract

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

Meucci, Attilio, Beyond Black-Litterman in Practice: A Five-Step Recipe to Input Views on Non-Normal Markets (May 2006). Available at SSRN: https://ssrn.com/abstract=872577 or http://dx.doi.org/10.2139/ssrn.872577

Attilio Meucci (Contact Author)

ARPM - Advanced Risk and Portfolio Management ( email )

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

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