HOW DOES IT WORK??
in cfa text they say something about them developing a very nice model… and then investing his personal portfolio 50% in equities and 50% in bonds as a no-brainer…
Let me try. Black Litterman is essential an MVO in the final stage. However, it aims to use “better” estimated returns for different assets that are to be put to MVO to produce the efficient frontier. In BL, Assets = constituents of a global market index Estimated return of each asset = “reverse engineered” from the return of the global market index, based on the weighting of the asset in the index, and using some great computer program Then SD (of each asset) and correlations (between the assets) continue to be estimated from historical data of the assets (just like the standard MVO). All of them can then be used for MVO to generate the required efficient frontier (and corner portfolios?) - sticky
I think they will probably test how BL is better than traditional MVO. Under BL, you start by taking the asset allocation weights in a Global portfolio. Then incorporate investor beliefs (based of course upon his/her risk-return objectives about assets), and the strength of those beliefs. The MVO can be used to determine asset class weights in the wake of strength of investor own views. However, you essentially start with a well diversified position under BL! By comparison, in a MVO that starts with fewer assets, capital market expectations about returns can have a significant bearing on asset allocation weights. So some asset classes can end up being over weight based upon their return sensitivities. The MVO in this context is highly sensitive to return sensitivities. The BL overcome this approach by starting with a well diversified position, and then incorporating investor views.
please run a search … i’m all for ppl asking questions, its value addition for everyone… but i have noticed you ask questions which we have all hashed out a zillion times… don’t flood the board with repetitive posts
i’d rather read repetitive posts on pertinent topics than all the posts on who can study 200 hrs a week in a 168 hour week, who’s having intestinal problems due to stress etc etc - - i like these quick repetitive threads - - the “tips threads” etc - - if we could just trim the complaining - - i’m all for the occasional goose running around with an arrow in its neck for some levity i’ve seen BL threads before but think the way sticky and eastwest combined explained it was most clear to me - - good rep there - - probably helps the writer remember better also by the way, i’m studying 300 hrs this week and 700hrs prior to june 7th
I hate it when we fight
Yeah but the make up is great
don’t mean to fight - - just think the most valuable part of this site is the repetitive questions - - lot of info so helpful to keep hitting it; pretty unique opportunity to get some pretty damn smart people to simplify a concept so my simpleton brain gets it - - comedy always appreciated - - weeding through complaining is mind numbing when i’m already diverting too much attention from real work - - whatever, maybe it’s therapeutic for some (go for it then) - problem is i always skim through it just to make sure there isn’t some nugget in there or PJ Styles didn’t post some kick-a$$ list that i can to the pile
Black Litterman improves upon efficient frontier by creating a more diversified portfolio. I remember reading that MV efficient frontier can end up with concentrated positions. Other things about BL: assets based on global market index. Analyst can incorporate his/her forecasts into the model as well. I think the main disadvantage is that the model is not validated by any statistical methodologies. Plus it is not a dynamic model like Monte Carlo.
bigwilly Wrote: ------------------------------------------------------- > Yeah but the make up is great ah! my first official fight here… so how exactly do we make up here ?
You got a paypal account?
Well if you were my wife…oh never mind
why does making up always hurt the pocket ? … can’t we trade favours ?