[R-SIG-Finance] Black Litterman question

Bastian Offermann bastian2507hk at yahoo.co.uk
Fri Mar 27 01:06:47 CET 2009

Hi all,

my question is aimed at the Black-Litterman experts. I am constructing a 
portfolio consisting of various equity indices and express 1 absolute 
view and 1 relative view on another 2 assets.

Additionally, I have to express confidence levels put into each view. 
The higher the level the larger the deviation from its equilibrium 
weight. Thats my question: Does the tilt from equilibrium necessarily 
reach its maximum when my confidence is 100% ?? Or may it reach its 
largest tilt at a lower confidence level? Does not sound intuitive, but 
my calculations just show that (maximum tilt at 99% confidence to be 

Thanks for your input.


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