Author(s): Hasan Alp ÃZELï· Selin ÃZEN
The Black-Litterman model, developed by Fisher Black and Robert Litterman in 1990, is a model that the investor’s view can be brought in the formulation of optimal portfolio selection process. The Black-Litterman model combines the expectations of an investor regarding the expected returns of the one or more assets with the market returns to compute the new ultimate returns. In this study, we use five insurance companies’ asset returns and the Black-Litterman model is applied to this dataset. First, the market returns are obtained by using the Capital Asset Pricing Model and the weights of this assets are computed regarding to the market returns. By using these results, the equilibrium returns are calculated by reverse optimization method. Investor expectations are determined based on the equilibrium returns and the uncertainties of these expectations are calculated. Then the ultimate returns are obtained by applying the Black-Litterman model and the portfolio weights are revised. The results are obtained in the same direction with the expectations of the investors and the estimated weight of the assets in the portfolio increased
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