BlackLittermanFormula {PortfolioAnalytics}

Computes the Black-Litterman formula for the moments of the posterior normal.

Description

This function computes the Black-Litterman formula for the moments of the posterior normal, as described in A. Meucci, "Risk and Asset Allocation", Springer, 2005.

Usage

BlackLittermanFormula(Mu, Sigma, P, v, Omega)

Arguments

Mu

[vector] (N x 1) prior expected values.

Sigma

[matrix] (N x N) prior covariance matrix.

P

[matrix] (K x N) pick matrix.

v

[vector] (K x 1) vector of views.

Omega

[matrix] (K x K) matrix of confidence.

Value

BLMu [vector] (N x 1) posterior expected values.

BLSigma [matrix] (N x N) posterior covariance matrix.

Author(s)

Xavier Valls [e-mail]

References

A. Meucci - "Exercises in Advanced Risk and Portfolio Management" https://www.arpm.co/articles/exercises-in-advanced-risk-and-portfolio-management/.

See Meucci's script for "BlackLittermanFormula.m"