Beyond Black-Litterman in practice

In principle, the copula-opinion pooling (COP) approach extends the Black-Litterman methodology to non-normally distributed markets and views. However, the implementations of the COP framework presented so far rely on restrictive quasi-normal assumptions. Here, Attilio Meucci presents a general recipe to implement the COP approach in practice under all possible market and view specifications

The technique introduced by Black & Litterman (BL) in 1990 allows portfolio managers to calculate a posterior market distribution that smoothly blends their subjective views on the market with a prior market distribution, under the assumption that all the distributions involved are normal.

In reality, markets are in general highly non-normal. Furthermore, practitioners might wish to input their views in less informative ways than the 'alpha + normal noise' prescription of BL, for instance by