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<p>In this paper, we study the Black–Litterman (BL) asset allocation model (Black and Litterman in Asset Allocation: combining investor views with market equilibrium, Goldman Sachs Fixed Income Research, 1990) under the hidden truncation skew-normal distribution (Arnold and Beaver in Sankhya: Indian J Stat Ser A, 2000). We specifically demonstrate that when returns are modeled using this skew-normal distribution, the posterior returns, after incorporating views, also follow a skew-normal distribution. By applying Simaan’s three-moment risk model (Simaan in Manag Sci 5:578–587, 1993), we further illustrate how an optimal portfolio can be constructed under the assumption of skew-normal returns. To provide practical insights, we present numerical illustrations based on a sample of selected stock price times series.</p>

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Black–Litterman asset allocation under hidden truncation distribution

  • 期刊论文

  • 发表日期：

    2025年5月7日

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  • Jungjun Park,
  • Andrew L. Nguyen

摘要

In this paper, we study the Black–Litterman (BL) asset allocation model (Black and Litterman in Asset Allocation: combining investor views with market equilibrium, Goldman Sachs Fixed Income Research, 1990) under the hidden truncation skew-normal distribution (Arnold and Beaver in Sankhya: Indian J Stat Ser A, 2000). We specifically demonstrate that when returns are modeled using this skew-normal distribution, the posterior returns, after incorporating views, also follow a skew-normal distribution. By applying Simaan’s three-moment risk model (Simaan in Manag Sci 5:578–587, 1993), we further illustrate how an optimal portfolio can be constructed under the assumption of skew-normal returns. To provide practical insights, we present numerical illustrations based on a sample of selected stock price times series.