Black-Litterman Model

This post gives a derivation of the Black-Litterman (BL) model. BL model is a bespoke tactical asset allocation model incorporating investor's view for tilting market equilibrium weights.

Theil mixed estimator

This post deals with the Theil mixed estimator which uses the prior information as well as the sample information.

Generalized Least Squares (GLS) estimator

This post deals with the generalized least squares (GLS) estimator Since when deriving the Black-Litterman (BL) model, the Theil mixed estimator is used, which is a kind of GLS.

ETF Tracking Error Minimization using R code

This post explains how to construct ETF tracking error (TE) minimization and introduces R packages which perform a (sparse) index tracking. ETF (Exchange Traded Fund) is a traded fund listed on the exchange. ETF tries to mimic or follow a target benchmark index (BM) such as S&P500. This is called the tracking error (TE) minimization.

Using NEOS Optimization Solver in R code

This post explains how to use ROI and ROI.plugin.neos packages in R code, which provide an interface to NEOS (Network-Enabled Optimization System) Server. It is a free internet-based service for solving numerical optimization problems. For understanding how to use ROI package, we implement R code for portfolio optimization problem.

Markowitz v.s. Michaud Portfolio Optimization with R code

This post shows how to perform asset allocation based on the Markowitz's mean-variance (MV) portfolio model which is the benchmark framework. This model is based on the diversification effect. Another alternative Michaud's Resampled Efficiency (RE) portfolio model is also discussed. These two models are implemented using a quadratic optimization R library.