Lecture 8 - Index Models

Question 1

What is the Treynor-Black Model?

Answer 1

• Portfolio construction using the single-index model.
• Combine an active portfolio with a passive portfolio.
• The contribution of the active portfolio is determined by information ratio (IR).

Question 2

What is the Black-Litterman Model?

Answer 2

1. Uses historical data to produce baseline forecasts - construct passive portfolio.
2. Managers’ private views are introduced and quantified - generate an optimal portfolio.

Question 3

The TB and BL models are…

Answer 3

Complementary tools. Both should be used.

Question 4

The TB model is more geared toward…

Answer 4

Security analysis.

Question 5

The BL model is more fits…

Answer 5

The asset allocation problems.