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Fully Flexible Views and Stress-testing

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Fully Flexible Views and Stress-testing

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02 Sep 2008 (Updated )

Full generalization of Black-Litterman and related techniques via entropy pooling

s=MapVol(sig,y,K,T)
function s=MapVol(sig,y,K,T)
% in real life a and b below should be calibrated to security-specific time series

a=-.00000000001; 
b= .00000000001; 

s = sig + a/sqrt(T)*(log(K)-log(y)) + b/T*(log(K)-log(y)).^2;

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