Black-Litterman Portfolio Optimisation: An Application to the German and Swiss Stock Market

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Kaiser, L. (2010). Black-Litterman Portfolio Optimisation: An Application to the German and Swiss Stock Market. Unpublished Master Thesis, University of Liechtenstein, Vaduz.

Publication type



This thesis investigate the well known Black-Litterman approach for port- folio optimisation. In a first step the reader is provided an overview on the basic concepts of mean-variance optimisation and its mathematical deriva- tion. Next, the short-comings of mean-variance optimisation are exposed, which form the basis for the development of the Black-Litterman approach. The approach has been explored both matematically as well as in a general portfolio context. The empirical part of this thesis incorporates a comparison between the Black-Litterman approach, a Minimum-Variance Portfolio, a Maximum- Sharpe-Ratio Portfolio, a Buy-and-Hold Strategy as well as a market- cap- italisation weighted index as a benchmark. The analysis took place for two national equity portfolios, comprised of the DAX30 and SMI20 composites. Furthermore, the views for the tactical allocation where applied in the form of analyst recommendations of the type consensus estimate. The results of this thesis show, that the Black-Litterman approach is able to overcome the majority of short-comings associated with mean-variance optimisation. At the same time the performance, in terms of a risk-return relationship, is very competitive for the sample period. However, the results are sensitive to both adjustments in the parameters as well as the underlying market conditions to which the model is applied.


Organizational Units

  • Institute for Financial Services
  • Chair in Business Administration, Banking and Financial Management