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Open AccessOpen Access JUSTC Research Articles:Management Science and Engineering

Portfolio based on Black-Litterman model with entropy compensation

  • School of Management, University of Science and Technology of China, Hefei 230026, China

Cite this:
https://doi.org/10.3969/j.issn.0253-2778.2015.12.011
  • Received Date: 22 December 2014
  • Accepted Date: 14 July 2015
  • Rev Recd Date: 14 July 2015
  • Publish Date: 30 December 2015
    Abstract

  • Abstract

    The Black-Litterman model can be recognized in the financial markets in combination with subjective judgment of the investors and the traditional portfolio. Based on the model, the optimization method with entropy compensation was presented. AR-TGARCH was used on the basis of historical data to predict yields and volatility, as the input variable, instead of the pure sense of the analysts subjective decision. The optimal combination of asset weights were obtained by solving the nonlinear programming problem with entropy compensation. Empirical study shows that the new model achieves better return and has stronger applicability than other portfolio models.

    Abstract

    The Black-Litterman model can be recognized in the financial markets in combination with subjective judgment of the investors and the traditional portfolio. Based on the model, the optimization method with entropy compensation was presented. AR-TGARCH was used on the basis of historical data to predict yields and volatility, as the input variable, instead of the pure sense of the analysts subjective decision. The optimal combination of asset weights were obtained by solving the nonlinear programming problem with entropy compensation. Empirical study shows that the new model achieves better return and has stronger applicability than other portfolio models.
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    • References(14)
  • [1]
    Markowitz H M. Portfolio Selection[J]. The Journal of Finance,1952,7: 77-91.
    [2]
    Chu Chen, Fang Zhaoben. Optimal portfolio project with modified covariance matrix and its stability[J]. Journal of University of Science and Technology of China, 2011,41(12): 1 035-1 041.
    储晨,方兆本. 修正协方差阵的投资组合方案及其稳定性[J]. 中国科学技术大学学报,2011,41(12): 1 035-1 041.
    [3]
    Ge Ying, Cheng Xijun, Fu Yongjian. An application of entropy pooling and diversifying risk model in portfolio optimization[J]. Journal of University of Science and Technology of China, 2013, 43(9): 754-761.
    葛颖,程希骏,符永健. 熵池理论和风险平均分散化模型在投资组合分配中的应用[J]. 中国科学技术大学学报, 2013,43(9): 754-761.
    [4]
    Black F, Litterman R. Asset allocation: Combining investor views with market equilibrium[R]. Golden Sachs Fixed Income Research,1990.
    [5]
    He G,Litterman R. The intuition behind Black-Litterman model portfolios[R]. Rochester, NY: SSRN 2002: 334304.
    [6]
    Idzorek T M. A step-by-step guide to the Black-Litterman model[C]// Forecasting Expected Returns in the Financial Markets. London: Elsevier, 2002.
    [7]
    Meucci A. Enhancing the Black-Litterman and related approaches: Views and stress-test on risk factors[J]. Journal of Asset Management, 2009, 10: 89-96.
    [8]
    Meucci A, Ardia D, Keel S. Fully flexible extreme views[J]. Journal of Risk, 2011, 14(2): 39-49.
    [9]
    Yin Libo, Han Liyan. Study of international commodity assets industry allocation strategy[J]. Systems Engineering: Theory & Practice, 2014,34(3):560-574.
    尹力博,韩立岩. 国际大宗商品资产行业配置研究[J]. 系统工程理论与实践,2014,34(3):560-574.
    [10]
    郭梁,李子婧. Black-Litterma模型在资产配置中的应用[N]. 期货日报,2009-11-27007.
    [11]
    Liu Qingfu, Zhong Weijun, Mei Shu’e. Market risk measurement of copper futures in China based on VaR-GARCH models[J]. Journal of Systems Engineering, 2006, 21(4):429-433.
    刘庆富,仲伟俊,梅姝娥. 基于VaR-GARCH模型族的我国期铜市场风险度量研究[J]. 系统工程学报,2006,21(4):429-433.
    [12]
    陈娟,沈晓栋. 中国股票市场收益率与波动性的阶段性研究[J]. 统计与决策,2005(8):98-100.
    [13]
    傅祖芸.信息论基础理论与应用[M].第三版. 北京:电子工业出版社,2013.
    [14]
    Li Hua, Li Xingsi. A new portfolio model and application[J]. Operations Research and Management Science, 2003, 12(6):83-86.
    李华,李兴斯. 证券投资组合理论的一种新模型及其应用[J]. 运筹与管理,2003, 12(6):83-86.
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    [1]
    Markowitz H M. Portfolio Selection[J]. The Journal of Finance,1952,7: 77-91.
    [2]
    Chu Chen, Fang Zhaoben. Optimal portfolio project with modified covariance matrix and its stability[J]. Journal of University of Science and Technology of China, 2011,41(12): 1 035-1 041.
    储晨,方兆本. 修正协方差阵的投资组合方案及其稳定性[J]. 中国科学技术大学学报,2011,41(12): 1 035-1 041.
    [3]
    Ge Ying, Cheng Xijun, Fu Yongjian. An application of entropy pooling and diversifying risk model in portfolio optimization[J]. Journal of University of Science and Technology of China, 2013, 43(9): 754-761.
    葛颖,程希骏,符永健. 熵池理论和风险平均分散化模型在投资组合分配中的应用[J]. 中国科学技术大学学报, 2013,43(9): 754-761.
    [4]
    Black F, Litterman R. Asset allocation: Combining investor views with market equilibrium[R]. Golden Sachs Fixed Income Research,1990.
    [5]
    He G,Litterman R. The intuition behind Black-Litterman model portfolios[R]. Rochester, NY: SSRN 2002: 334304.
    [6]
    Idzorek T M. A step-by-step guide to the Black-Litterman model[C]// Forecasting Expected Returns in the Financial Markets. London: Elsevier, 2002.
    [7]
    Meucci A. Enhancing the Black-Litterman and related approaches: Views and stress-test on risk factors[J]. Journal of Asset Management, 2009, 10: 89-96.
    [8]
    Meucci A, Ardia D, Keel S. Fully flexible extreme views[J]. Journal of Risk, 2011, 14(2): 39-49.
    [9]
    Yin Libo, Han Liyan. Study of international commodity assets industry allocation strategy[J]. Systems Engineering: Theory & Practice, 2014,34(3):560-574.
    尹力博,韩立岩. 国际大宗商品资产行业配置研究[J]. 系统工程理论与实践,2014,34(3):560-574.
    [10]
    郭梁,李子婧. Black-Litterma模型在资产配置中的应用[N]. 期货日报,2009-11-27007.
    [11]
    Liu Qingfu, Zhong Weijun, Mei Shu’e. Market risk measurement of copper futures in China based on VaR-GARCH models[J]. Journal of Systems Engineering, 2006, 21(4):429-433.
    刘庆富,仲伟俊,梅姝娥. 基于VaR-GARCH模型族的我国期铜市场风险度量研究[J]. 系统工程学报,2006,21(4):429-433.
    [12]
    陈娟,沈晓栋. 中国股票市场收益率与波动性的阶段性研究[J]. 统计与决策,2005(8):98-100.
    [13]
    傅祖芸.信息论基础理论与应用[M].第三版. 北京:电子工业出版社,2013.
    [14]
    Li Hua, Li Xingsi. A new portfolio model and application[J]. Operations Research and Management Science, 2003, 12(6):83-86.
    李华,李兴斯. 证券投资组合理论的一种新模型及其应用[J]. 运筹与管理,2003, 12(6):83-86.
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