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Bayesian Estimation & Black-Litterman

By: Joshua D. Coval and Erik Stafford
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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

Citation

Coval, Joshua D., and Erik Stafford. "Bayesian Estimation & Black-Litterman." Harvard Business School Background Note 208-085, November 2007.

About The Authors

Joshua D. Coval

Finance
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Erik Stafford

Finance
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