Page 159 - Contributed Paper Session (CPS) - Volume 8

CPS2225 Retno Subekti et al.
feeling restatement with dynamic approach. So, one of the keywords in BLM
discussion is how to build the opinion in terms of incorporate with Capital
Asset Price Model and gain Black-Litterman return as a new optimizer in
portfolio.

2. Methodology
We begin this research with introduction the Black–Litterman return, views
statement in many literatures in this section. Herafter, by incorporate the
updating views for multi period, we present our numerical example and
evaluation of portfolio performance in the result and discussion section.
2.1 Black Litterman Return
It is known that an emerging of a new model will have variety of response,
including Black-Litterman Model is similar to the proposed Capital Asset
Pricing Model when it became familiar from William Sharpe (1964), John
Lintner (1965), Jan Mossin (1966) and Jack Treynor (1961). Black-Litterman
model is a new formula that emerged in 1990 by Robert Litterman and Fischer
Black in their article (1). This new model had a numerous explanation because
in the original article is not clearly yet. (2) proposed a detailed bayes method
for BLM construction and this model is convinced will help in financial
portfolio. The idea is equilibrium condition and investor’s feeling are blended
to form a new posterior return as an expectation in the investment.
When tracking this model, everyone who has relation in the same topic will
be inspired and try to learn, develop or make a new contribution on it. The
growth of references for developing this model is very greatly from 2000 until
now. Many researchers discuss about how to build the model from theoretical
background and continue it with how to implement the model into reality. In
other words, how to practice step by step this certain model, surely with many
assumptions are required to limit the discussion of solving problem in the
model.
The unique of this model is when we can put the opinion or feeling as a
view in the future into the processing of optimization problem. Starting from
implied return equilibrium, CAPM which is normally assumption then we focus
on building views as a future return by Meucci (1) and Idzorek (2).
−
= ′ + ()′ (′) ( − ′)
The detailed formula and its explanation can also be traced from Walter
(3) who explain some of the difference from the authors investigating the
formula of Black Litterman return. The outline is original version, alternative,
theil mixed regression and sampling theory. In this research, we limited the
discussion for the view development in BL formula.

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