A derivation of the Black–Litterman formula and its symmetry property

Matthew A. Wey

Economics Letters, 2023, vol. 231, issue C

Abstract: I present a novel derivation of the Black–Litterman formula by using Theil’s mixed estimator. Additionally, I derive the Black–Litterman formula’s symmetry property. This latter derivation can be used to provide guidance on the estimate of τ. I develop a method to do so and provide a toy asset allocation example.

Keywords: Black–Litterman; Symmetry property; Theil’s mixed estimator; Expected returns; Asset allocation (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:231:y:2023:i:c:s0165176523003282

DOI: 10.1016/j.econlet.2023.111303

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