Fully flexible views: theory and practice

Attilio Meucci proposes a unified methodology to input non-linear views from any number of users in fully general non-normal markets and perform, among others, stress testing, scenario analysis and ranking allocation. He walks the reader through the theory and details an efficient algorithm to easily implement this methodology under fully general assumptions

Scenario analysis allows a practitioner to ex-plore the implications for a given portfolio of a set of subjective views on possible market realisations (see, for example, Mina & Xiao, 2001). The ground-breaking approach pioneered by Black & Litterman (1990) generalises scenario analysis by adding uncertainty about the views and the reference risk model. Further generalisations have been proposed in recent years. Qian & Gorman (2001) provide a framework to stress test volatilities and