Bayesian Estimation & Black-Litterman

Joshua D. Coval; Erik   Stafford

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Background Note | HBS Case Collection | November 2007

Bayesian Estimation & Black-Litterman

by Joshua D. Coval and Erik Stafford

Abstract

Describes a practical method for asset allocation that is more robust to estimation errors than the traditional implementation of mean-variance optimization with sample means and covariances. The Bayesian inspired Black-Litterman model is described after introducing the intuition of the Bayesian approach to inference in a univariate setting.

Keywords: Asset Management; Investment Portfolio; Mathematical Methods;

Format: Print

4 pages

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