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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

ViewImpliedVol(X,p)
function p_ = ViewImpliedVol(X,p)

[J,K]=size(X);

% constrain probabilities to sum to one...
Aeq = ones(1,J);  
beq=1;

% ...constrain the expectation...
V = [X(:,12) - X(:,11)];
m=mean(V);
s=std(V);

A = V';
b = m-s;

% ...compute posterior probabilities
p_ = EntropyProg(p,A,b,Aeq ,beq); 

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