The Black-Litterman model in continuous time: analysis of the effect of biased expert forecasts on asset allocations

Abstract

The objective of this thesis is to compare portfolios optimized using the Black-Litterman model in continuous time, with a focus on analyzing the impact of biased expert opinions on asset allocations. Behavioral biases play a crucial role in finance professionals' perception, information processing, and forecast formation. The thesis is structured as follows. The first chapter provides an introduction to the Black-Litterman model and its applications in continuous time, as well as an overview of the main behavioral biases and methods for reducing their influence. The second chapter focuses on presenting the mathematics behind the Black-Litterman model in continuous time. The third chapter presents the practical implementation of the model and compares the results obtained to assess the impact of biased expert forecasts on portfolio construction.The objective of this thesis is to compare portfolios optimized using the Black-Litterman model in continuous time, with a focus on analyzing the impact of biased expert opinions on asset allocations. Behavioral biases play a crucial role in finance professionals' perception, information processing, and forecast formation. The thesis is structured as follows. The first chapter provides an introduction to the Black-Litterman model and its applications in continuous time, as well as an overview of the main behavioral biases and methods for reducing their influence. The second chapter focuses on presenting the mathematics behind the Black-Litterman model in continuous time. The third chapter presents the practical implementation of the model and compares the results obtained to assess the impact of biased expert forecasts on portfolio construction

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