Alternative distributions in the Black-Litterman model of asset allocation
Master Thesis
2011
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University of Cape Town
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Abstract
In this thesis we replace the normal distribution assumption in the calculation of the prior equilibrium returns used in the model with a more general distribution which captures the skewness and fat tails exhibited by stock data. We consider the á stable distributions as an alternative distribution to the normal distribution. Consequently we also consider alternative measures of risk, the Value at Risk and the Conditional Value at Risk other than the variance used in the normal case.
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Includes bibliographical references.
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Mbofana, S. 2011. Alternative distributions in the Black-Litterman model of asset allocation. University of Cape Town.