Papers by Alessandro Colasante
ABSTRACT In this article, we re-examine a new optimization approach introduced by Black and Litte... more ABSTRACT In this article, we re-examine a new optimization approach introduced by Black and Litterman to overcome the weaknesses of the standard mean-variance optimization model. We also consider the resampling technique to refine our results. Our results show that combining the resampling technique with the Black–Litterman model presents the most robust asset allocation. When we consider the case of hedge funds (HFs), we find that the integration of HFs into traditional investment categories indeed improves the portfolio's risk/return profile, for the period 2002–2007. The importance of HFs is less obvious, however, when using the Black–Litterman model with the resampling technique.
The Journal of Trading, 2006
Financial Markets and Portfolio Management, 2007
This paper provides an application of the methodology to portfolio management in a global setting... more This paper provides an application of the methodology to portfolio management in a global setting. The novel feature of this paper relative to the extant literature on Black-Litterman methodology is that we use GARCHderived views as an input into the Black-Litterman model. The returns on our portfolio surpass those of portfolios that rely on market equilibrium weights or Markowitzoptimal allocations. We thereby illustrate how the Black-Litterman model can be put to work in designing global investment strategies.
Quantitative Finance, 2007
The integration of quantitative asset allocation models and the judgment of portfolio managers an... more The integration of quantitative asset allocation models and the judgment of portfolio managers and analysts (i.e., qualitative view) dates back to papers by Black and Litterman [4], [5], [6]. In this paper we improve the classical Black-Litterman model by applying more realistic models for asset returns (the normal, the t-student, and the stable distributions) and by using alternative risk measures (dispersion-based risk measures, value at risk, conditional value at risk). Results are reported for monthly data and goodness of the models are tested through a rolling window of fixed size along a fixed horizon. Finally, we find that incorporation of the views of investors into the model provides information as to how the different distributional hypotheses can impact the optimal composition of the portfolio.
Journal of Portfolio Management, 2007
The Black-Litterman model [1992] (BL) is a process for developing better inputs for portfolio opt... more The Black-Litterman model [1992] (BL) is a process for developing better inputs for portfolio optimization. Prior to its development, investors were often frustrated by the seemingly unreason-able solutions produced by portfolio optimization techniques. This led many to ...
Journal of Asset Management, 2000
... A demystification of the BlackLitterman model: Managing quantitative and traditional ... Abs... more ... A demystification of the BlackLitterman model: Managing quantitative and traditional ... Abstract The purpose of this paper is to present details of Bayesian portfolio construction procedures which have become known in the asset management industry as BlackLitterman models. ...
Having attempted to decipher many of the articles about the Black-Litterman model, none of the re... more Having attempted to decipher many of the articles about the Black-Litterman model, none of the relatively few articles provide enough step-by-step instructions for the average practitioner to derive the new vector of expected returns. 1 This article touches on the intuition of the Black-Litterman model, consolidate insights contained in the various works on the Black-Litterman model, and focus on the details of actually combining market equilibrium expected returns with "investor views" to generate a new vector of expected returns. Finally, I make a new contribution to the model by presenting a method for controlling the magnitude of the tilts caused by the views that is based on an intuitive 0% to 100% confidence level, which should broaden the usability of the model beyond quantitative managers.
Financial Markets and Portfolio Management, 2001
The MARKOWITZ (1952) formulation of mo-dern portfolio theory combines the two basic objectives of... more The MARKOWITZ (1952) formulation of mo-dern portfolio theory combines the two basic objectives of investing: maximizing expected return and at the same time minimizing risk. In a portfolio context, risk is measured as the standard deviation (or volatility) of returns around their ...
SSRN Electronic Journal, 2002
... assets as well as the optimal portfolio weights. Although Black and Litterman concluded in th... more ... assets as well as the optimal portfolio weights. Although Black and Litterman concluded in their 1992 article [Black and Litterman, 1992]: ... returns[Black and Litterman, 1990, 1992]. With the Bayesian approach, the expected returns are random variables themselves. ...
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Papers by Alessandro Colasante