[R-SIG-Finance] Black Litterman question

Brian G. Peterson brian at braverock.com
Fri Mar 27 02:01:43 CET 2009

Bastian Offermann wrote:
> 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 
> specific).

Depending on your constraints, you may reach the maximum tilt much sooner than 
100% confidence.


    - Brian

Brian G. Peterson
Ph: 773-459-4973
IM: bgpbraverock

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