Reverse optimization and capital asset pricing model in the application of the Black Litterman portfolio
Penulis/Author
RETNO SUBEKTI (1); Prof. Dr. Abdurakhman, S.Si., M.Si. (2); Prof. Dr.rer.nat. Dedi Rosadi, S.Si.,, M.Sc. (3)
Tanggal/Date
14 2021
Kata Kunci/Keyword
Abstrak/Abstract
In the application of the Black Litterman model on portfolio construction, the terms
of reverse optimization and Capital Asset Pricing Model (CAPM) are often associated with the
Black Litterman process. This study explains the Black Litterman model from two perspectives:
reverse optimization and the CAPM formula. Two portfolios are built with different starting
points and without any lambda difference as a risk aversion coefficient, a scalar tau, and views
return in the Black Litterman strategy. Both models are applied in the Indonesian stock market,
and the empirical comparison of both portfolios are demonstrated. The result shows that both
approaches can build a portfolio using the Black Litterman with a similar weight allocation.
