What do I need to know about Black-Literman?

ppl, you might not know how powerful you are in this blog. Thank you for all of your help. I have 10 more hours to study for this devil, therefore, I going to ask a few simple questions to make sure I got the essensial about then. My first one: What do I need to know about Black-Literman model to survive?

How E® is derived from this model, and the resulting portoflio is more diversified.

It back solves for implied return. It has an ability to smoothen ouput return by taking into account opinion of analyst (you can ‘merge’ BL output with your estimates) inputs: weights, correlations and volatilities ouput: implied market return After you get your returns you use standard MVO to build allocations. Your allocations will be more diverisified

-It starts with a well diversified benchmark -It reverse engineers the returns based off covariances and correlations -Allows the user to adjust expected returns and their associated confidence in those returns -Results in an mean-variance efficient and diversified portfolio that will lie on the CAL line. anything else i missed?

-Results in an mean-variance efficient and diversified portfolio that will lie on the CAL line. It will lie on a CAL line why?

THat what I am talking about. I think in this cruching, those are quik questions that need to answer. thank you.

b/c i say so. :slight_smile: I thought i read that… hmmm…

Only highest SR portfolio will lie on CAL, BL wont result in any portfolio but input estimates. You build frontier out of that

got ya comp_sci_kid, thanks

BL will result in a well-diversified, mean-variance efficient portfolios. That’s what STalla says, I’m wrong i guess on the CAL, thught i read that.

BL i was under impression you still have to run MVO after BL, i mean i am pretty sure you still have to.

hmmm…I dont htink so but I could be wrong.

I am with CSK on that, you still need inputs to run the MVO, instead estimate them (mean-variance, resample). BL is a way to provide the inputs.

Page # please. (I pulled a CSK)

I think you have to run the optimization after the BL spits out your inputs…thats my take…its just assumed that these inputs are now observable or somewhat justified by the prices/returns of the diversified index/benchmark…sound right?

bigwilly Wrote: ------------------------------------------------------- > Page # please. (I pulled a CSK) How dare you!!!

hee hee