Jay's Asset Allocation Blog

Blog about my off-hours work on the problem of Asset Allocation including but not limited to Portfolio Optimization algorithms, algorithms and approaches for improved estimation of Asset Allocation inputs and other potentially related items.

Saturday, May 10, 2008

Black Litterman and the Global Equilibrium

I've been trying to figure out what Black and Litterman did in their original paper to go from the Global Equilibrium to the asset returns. I finally broke down and bought Litterman's book and chapter 6 seems to point the way. Lots of simultaneous equations to solve, and I still can't make heads of tails of what he writes enough to figure it out, but it's definitely the tool that is needed to unravel that mystery. I will be happy when I get that unsnarled and can explain it to somebody else.

Friday, May 2, 2008

Updated Black-Litterman paper

Finally, it's done. Feels like I've been working on this revision for months, though probably it's only been for a few weeks. Lots of changes and cleanup, uses Theil's approach like the original Black and Litterman paper and I think it is more clean than the last one which was a bit of a hatchet job in places.

Now I'm on to working on an example. I'll probably use some real but old market data (2005?) in order to have the feel of realism, but not be promoting anything for the current time. After all, this blog and website is about implementations of optimization and allocation tools.