Apparently… there was a 5 mark question last year on a topic on something like "Black … " that everyone missed in Level 3. It wasn’t the Black Scholes but my buddy and anyone who used Schweser left the answer blank. Anyone recall any topics in the materials about BLACK … ??? He couldn’t remember the exact terminology but said he had never seen it before in his studies. He still ended up passing but nevertheless, thought it was interesting.
Black & Tan
Treynor Black as a less funny answer
How the heck did he miss the Treynor Black question? Did Schweser not cover it at all last year?
hole?
that’s not on it this year right?
I am assuming you are talking about Black Litterman.
It would have been great it Schweser would admit to their huge oversite and put a whole section on TB in book one before ethics… But noooo Instead they just continue to count their money while not updating the errata in a timely manner.
Black-Litterman ? Asset allocation based on implied returns.
mo34 Wrote: ------------------------------------------------------- > Black-Litterman ? Asset allocation based on > implied returns. Yeah, I think this is the only nasty “Black” in Level 3.
actually yeah… think it was the Black Litterman model.
It was covered in Schweser last year. I have the books to prove it.
BL is also explained this year 
although a bit better in CFAI. I wonder what other “catch” things could they have. it is definitely happening this year!!! I read through 2 CFAI books - heroically I must say- as I didnt retain a thing. Schweser keeps you focused but these things like BL may kill.
Remember the advantages of BL (Constrained) method: - starts with a well-diversified mkt cap-weighted portfolio (Global index) - allows the user to incorporate their own views on asset class returns and their strength of the view - ensures great consistency across estimate by integrating mkt equilibrium returns and by reducing investors extreme views - Doesn’t have the return sensitivy problems inherent with using historical data. - Provides a well-diversified, mean-variance efficient portfolio.
bigwilly Wrote: ------------------------------------------------------- > Remember the advantages of BL (Constrained) > method: > - starts with a well-diversified mkt cap-weighted > portfolio (Global index) Can you please explain me this Global Equilibrium Index? I just don’t understand what “Global” stands for?
I never said “Global Equilibrium Index”, I said a Global Index. Which would be an index that incorporates all the different asset classes from around the world…a Perfect Global Index doesn’t exist, but for Equities I guess you could use the MSCI ACWI. I’m not BL expert so I dont know.
inputs to BL model (if i recall correctly) std and corr matrix
No you dont’ input anything…its Reverse Optimization. I believe
bigwilly Wrote: ------------------------------------------------------- > I never said “Global Equilibrium Index”, I said a > Global Index. Which would be an index that > incorporates all the different asset classes from > around the world…a Perfect Global Index doesn’t > exist, but for Equities I guess you could use the > MSCI ACWI. I’m not BL expert so I dont know. Ok! I take “Equilibrium” back from my sentence. As far as I remember book (Schweser) talks about the equilibrium return on Global Market Index. So, my question was what exactly they mean by Global. I know there is nothing called universal acceptable index. Based on information I can think of it as a Custom Index. But, the question is how MVO is plotted if we assume there is only one custom index based on manager’s expectations (one data point). I don’t remember if CFAI book has covered it or not (I mean how detailed). May be I am overly reacting when there are lot of other topics to work on.
comp_sci_kid Wrote: ------------------------------------------------------- > inputs to BL model (if i recall correctly) std and > corr matrix Yes you need to assume the historical variances and covariances, to solve for the returns. You also has to assume there is no short sale.