Preprint E39/2014
Generalizations of the Black-Litterman Approach to Skew Normal Markets
Xu Yang | Jorge Passamani Zubelli
Keywords: Risk evaluation and mitigation | uncertainty quantification | portfolio management

In this technical report, we extend the Black-Litterman model for the  skew normal market by  applying 
conditional value-at-risk as an alternative risk measure to obtain the optimal portfolio. 
Furthermore, we modify the model of  the location parameter L by using the covariance matrix of the market where  L

has a normal distribution. In this case, we introduce a non-orthogonal formulation to the skew normal case, which correlates the prior model and the views.

Illustrative  examples of the approach are developed for Brazilian stock market portfolios using publicly available data
of some of the major traded assets leading to a robust analysis of some the main risk indicators such as Value at Risk and 
the Conditional Value at Risk.