Mathematical Derivations and Practical Implications for the Use of the Black-Litterman Model

Charlotta Mankert and Michael Seiler ()

Journal of Real Estate Portfolio Management, 2011, vol. 17, issue 2, 139-159

Abstract: Executive Summary. In this article, the financial portfolio model often referred to as the Black-Litterman model is described, and then mathematically derived, using a sampling theoretical approach. This approach generates a new interpretation of the model and gives an interpretable formula for the mystical parameter, τ, the weight-on-views. The practical implications of the model are discussed, along with how portfolio fund managers should arrive at model input values and what consideration must be weighted beforehand.

Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:taf:repmxx:v:17:y:2011:i:2:p:139-159

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DOI: 10.1080/10835547.2011.12089901

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