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The user of the model needed only to determine where his or her assumptions regarding returns diverged from the market view and the degree of confidence in these contrarian assumptions. The model could also be used in reverse, evaluating an existing portfolio to quantify the investor’s implied viewpoint on various markets as reflected in current holdings. The goal was to create a quantitative and disciplined approach to structuring international bond portfolios in a manner consistent with the portfolio manager’s unique view of markets.
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Three years later, the two were tasked with creating an asset allocation model to help clients diversify their global bond portfolios. In 1986 - the same year he was named a partner - Fischer Black brought Bob Litterman, a PhD in economics from the University of Minnesota, onto the Goldman Sachs Fixed Income Research team. While the more famous Black-Scholes Option Pricing Model was developed prior to Fischer Black’s move to Goldman Sachs’s Trading and Arbitrage Division led by Robert Rubin in 1984, innovations such as the Black-Litterman Global Asset Allocation model and the Black-Derman-Toy Model for pricing fixed income derivatives were developed while he worked at the firm. One of these was the Black-Litterman Global Asset Allocation Model. Robert Litterman and Fischer Black, 1994.įischer Black and Robert Litterman revolutionize portfolio management in 1990 with the creation of the Black-Litterman Global Asset Allocation Model – quickly adopted for optimal portfolio allocation across international equity, fixed income and currency markets.ĭuring his tenure of just more than a decade at Goldman Sachs, Fischer Black leveraged his extraordinary talents to combine creative theoretical finance and market-driven strategies for the creation of practical financial tools.