observ_normal {BLModel}

Example of distribution of views – normal distribution

Description

Function observ_normal computes density of normal distribution of views using the formula
f(x) = c_k*\exp(-((x-q)^{T}*covmat^{-1}*(x-q))/2),
where c_k is a normalization constant (depends on the dimension of x and q).

Usage

observ_normal(x, q, covmat)

Arguments

x

Data points matrix which collects in rows coordinates of points in which distribution density is computed.

q

Vector of investor's views.

covmat

Covariance matrix of the distribution.

Value

function returns a vector of distribution densities in data points x.

References

Palczewski, J., Palczewski, A., Black-Litterman Model for Continuous Distributions (2016). Available at SSRN: https://ssrn.com/abstract=2744621.

Examples

k =3
observ_normal (x = matrix(c(rep(0.5,k),rep(0.2,k)),k,2), q = matrix(0,k,1), 
               covmat = diag(k))