Black Litterman Model (25pt) Consider a market with one risk-free asset and...
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Accounting
Black Litterman Model
(25pt) Consider a market with one risk-free asset and three global assets: US stocks, Euro Stocks, and Japanese Stocks. The market capitalizations of these three assets are 35,10 , and 5 billion, respectively. The covariance matrix of the returns of these three assets are estimated as follows The market risk premium is estimated to be 6%. Apply the Black-Litterman model to compute the optimal allocation to US, Euro, and Japanese stocks. Assume his risk aversion degree 1/=4. Assume =0.1,1, and 10 , and P=(110100),q=(2.5%2%),=((2%)200(1.5%)2) (25pt) Consider a market with one risk-free asset and three global assets: US stocks, Euro Stocks, and Japanese Stocks. The market capitalizations of these three assets are 35,10 , and 5 billion, respectively. The covariance matrix of the returns of these three assets are estimated as follows The market risk premium is estimated to be 6%. Apply the Black-Litterman model to compute the optimal allocation to US, Euro, and Japanese stocks. Assume his risk aversion degree 1/=4. Assume =0.1,1, and 10 , and P=(110100),q=(2.5%2%),=((2%)200(1.5%)2)
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