Correspondence: Attilio Meucci, 731 Lexington Avenue, New York, NY 10022, USA. E-mail: attilio_meucci@symmys.com

¹leads the research effort of the portfolio analytics group at Bloomberg L.P. Concurrently he is Adjunct Professor at the graduate programme in Mathematical Finance of the Courant Institute – NYU. Previously, Attilio was a researcher at Lehman Brothers, a trader at the hedge fund Relative Value International, and a consultant at Bain & Co. He is the author of Risk and Asset Allocation – Springer and several other publications. He teaches for charity graduate courses on quantitative risk- and portfolio-management worldwide and he is frequently invited as a speaker to conferences, financial institutions and universities. He holds a BA summa cum laude in Physics from the University of Milan, an MA in Economics from Bocconi University, a PhD in Mathematics from the University of Milan and he is CFA chartholder. He is fluent in six languages and loves physical activity in the outdoors.

Received 30 August 2008; Revised 30 August 2008.

Abstract

The Black–Litterman and related approaches modify the return distribution of a normally distributed market according to views or stress-test scenarios. We discuss how to broaden the range of applications of these approaches significantly by letting them act on the risk factors underlying the market, instead of the returns of the securities. Code implementing the models discussed here can be found at www.symmys.com>Teaching>MATLAB.