The Black Litterman Model: A Non-Normal Approach.
Bedoya Riveros, Carlos Felipe
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The Black Litterman Model (BLM) is widely used tool for the estimation of the expected excess return of a given portfolio. It belongs to the field of Bayesian Statistics, and, assumptions on the prior and likelihood distributions are made. This work relaxes normality assumption on both distributions, and explores two scenarios, using Gamma and Skew Normal distributions. The posterior distribution is determined up to a constant and then data is sampled through Metropolis Hastings algorithms. A specific exercise is executed and its results are shown the end of the document.