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, June 12, 2010

New paper on Black-Litterman tau parameter

Finally got this paper put together enough to post for some feedback.

The crux of the paper is either to use tau properly or just drop it altogether, but no sense messing around with tau when you don't even need to. Most authors would do better to drop tau from their model and use what I call the Alternative Reference Model. I think Atillio Meucci uses the same name for it, we have some agreement that it is a different animal and can be clearly defined.

I expect to make a small set of edits/updates to this paper over the next week and then get it posted up on ssrn with my other paper on Black-Litterman. Mean while the big paper will also be shortly getting some edits. I've had many people tell me over the past year or areas which are not clear, mistakes or ways to simplify the paper and I am going to start making those edits. Also came upon some interesting new metrics during the research for the tau paper. I'll leave that for another time when I get the edits made to the paper.

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