Salomons, A. (2007) The black-litterman model hype or improvement? Master's Thesis / Essay, Mathematics.
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Abstract
This thesis explores a popular asset allocation model: the Black-Litterman model. First, an overview is given of the foundations of modern portfolio theory with the mean-variance model and the CAPM. Next, we discuss some improvements that could be made over the mean-variance model. The Black-Litterman model addresses some of these aws and tries to improve them. The model has been described mathematically, and various denitions of the parameters are compared. Finally, an empirical study has been performed to compare the performance of the Black-Litterman model to mean-variance optimization. The models have been compared in a three asset universe that consists of a momentum portfolio, a HML portfolio and a size portfolio. The views of the investor have been forecasted by a regression analysis on factors that describe the economic climate. The regression analysis also provides a consistent manner to specify the uncertainty on the views of the investor. The conclusion can be drawn that BL-model improves on the mean-variance model, in our sample period, however the result is dependent on a well chosen benchmark.
| Item Type: | Thesis (Master's Thesis / Essay) |
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| Degree programme: | Mathematics |
| Thesis type: | Master's Thesis / Essay |
| Language: | English |
| Date Deposited: | 15 Feb 2018 07:28 |
| Last Modified: | 15 Feb 2018 07:28 |
| URI: | https://fse.studenttheses.ub.rug.nl/id/eprint/8427 |
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