Commodities in Black-Litterman
For those people trying to use the Black Litterman to model asset classes other than equities and bonds, the challenge of commodities is an interesting one. How does one figure out the market capitalization of commodities, and what is the relationship between the ownership of reserves by natural resource companies (thus included in their market capitalization), and how do futures which might exceed the size of the spot market by some multiple fit in.
Tom Idzorek wrote a paper which covers some of these topics. I've seen a few more around the internet and I'll try to start putting them up here and also on the blacklitterman.org website.
posted by Jay @ 6:27 PM
3 Comments:
Hey Jay - Thanks for spending countless hours on BL. As an investment manager attempting to gain any edge possible, using BL as a tool to assist in tactical allocation is appealing. However, building a model in Excel has clogged my brain and I'm quite frankly having difficulty finding a starting point and a map to get me to the end. Any suggestions outside of the academic world would be appreciated. I feel like I've read so much but am no closer to the end goal of a working model. Thanks!
Scott, It certainly is a challenge to figure out how to make the Black-Litterman model accessible to more people. One level is the software, so while Quant developers usually use MATLAB, Excel would be more accessible though not as rich. The second level, is good examples of using Black-Litterman. Most of the examples in the literature are a bit contrived and don't cover the entire universe of assets. It is a lot to work on, and for blacklitterman.org I am always looking for feedback about useful additions to the site.
Hey Jay! I have trouble with Black-Litterman model. I made all steps that described in Idzorek's paper. But anytime I receive porfolio weights, the sum of which more than 1 or less than 1, but not even near 1. What's the problem? All calculations I made in matlab
Post a Comment
<< Home