We analyze the introduction of a diversification constraint into the portfolio optimization program. We show that such a constraint is equivalent to an unconstrained portfolio optimization program with a change of the sample covariance matrix by another matrix obtained as the sum of the sample...

The formulation of the Black-Litterman model as a Bayesian mixed estimation approach allows for computing the posterior expected returns taking into account the views of investor on future returns. When the views turn out to be wrong, the resulting portfolio may lead to losses. Sometimes, it may...