We present the most general model of the type considered by Black and Litterman (1991) after fully clarifying the duality between Black-Litterman optimization and Bayesian regression. Our generalization is itself a special case of a Bayesian network or graphical model. As an example, we work out...

The Black-Litterman model is one of the most popular models in quantitative finance, with numerous theoretical and practical achievements. From the standpoint of investment theory, the Black-Litterman model allows a seamless incorporation of Bayesian statistics into the portfolio optimization...