Qian and Gorman

I've been working on understanding paper for oh so long, and finally figured it out. Not sure if it's a testament to other than my follow through on the task, but it feels nice.

It seems they came up with a posterior variance formula different from the Black-Litterman model's posterior variance, and with some less than optimal characteristics. It doesn't include mixing, and it doesn't generally decrease because of the mixing, it can increase. They describe it as allowing the investor to specify views on covariance, but I am stuck on the math. It is not so obvious how the investors view mixes (at least to me), for example any non-zero investors view on variance will increase the posterior variance.

I need to read a bit more on how it should be used in order to really understand what they've done.

I've added a new section to the paper covering this analysis, but in the end it's just tying up a loose end and not really adding anything new to the puzzle.

I've also come across some more new papers, including a few out of Lehman in 2007 which cover some intriguing ways of handling factor models. Factor models and Black-Litterman is definitely an area that I am interested in.