Performance control and risk calibration in the Black-Litterman model

• Main Authors: TEE, Chyng Wen, HUANG, Shirley, Kian Guan LIM
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2017
• Subjects: Finance and Financial Management; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research_all/5; https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1010&context=lkcsb_research_all
• Institution: Singapore Management University

The authors show that risk aversion and prior estimation error input parameters of the Black-Litterman model that are arbitrarily fixed in existing practices should instead be carefully calibrated because they are related to the Sharpe performance ratio and Value at Risk or tail risk of the active p...