Analyze_This

BL is tricky. I think for the exam, a basic understanding of what it does is ok (and why its better than MVO).


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From what I gather, the process basically examines market weights (based on market cap) and historic correlations between markets to determine total risk and other var/covar params for the 'traditional' model. It kind of 'backsolves' risk premia to determine what the market 'says' the optimal portfolio is. Then, you overlay your investor 'views' on that to weight more markets either heavier or lighter than what the 'backsolved' equilibrium allocations are.

I could be wrong. Peyote. Jack Bauer.