Repository navigation
Fix excess-return inversion and singular fallback in BL weights - #769
Open
kadyrbekovhamit-cyber wants to merge 1 commit into
Open
kadyrbekovhamit-cyber wants to merge 1 commit into
kadyrbekovhamit-cyber wants to merge 1 commit into
Conversation
Signed-off-by: kadyrbekovhamit-cyber <288885044+kadyrbekovhamit-cyber@users.noreply.github.com>
|
Re-derived the headline number outside the repo: with cov=diag(.04,.09,.16), caps [500,300,200], delta=2, rf=.04, the prior is rf + deltaSigmaw_m, and solving (delta*Sigma) w = prior then normalising gives [0.5414, 0.2827, 0.1759] (matches the PR), while subtracting rf first gives [0.5, 0.3, 0.2]. So the bug and the fix check out on the arithmetic (I did not run the repo's test suite). Two things I noticed in the diff:
|
This file contains hidden or bidirectional Unicode text that may be interpreted or compiled differently than what appears below. To review, open the file in an editor that reveals hidden Unicode characters.
Learn more about bidirectional Unicode characters
Sign up for free
to join this conversation on GitHub.
Already have an account?
Sign in to comment
2 participants
Add this suggestion to a batch that can be applied as a single commit.This suggestion is invalid because no changes were made to the code.Suggestions cannot be applied while the pull request is closed.Suggestions cannot be applied while viewing a subset of changes.Only one suggestion per line can be applied in a batch.Add this suggestion to a batch that can be applied as a single commit.Applying suggestions on deleted lines is not supported.You must change the existing code in this line in order to create a valid suggestion.Outdated suggestions cannot be applied.This suggestion has been applied or marked resolved.Suggestions cannot be applied from pending reviews.Suggestions cannot be applied on multi-line comments.Suggestions cannot be applied while the pull request is queued to merge.Suggestion cannot be applied right now. Please check back later.
With a market prior and views equal to that prior,
bl_weights()should recover the market weights. Forcov=diag(.04,.09,.16), caps[500,300,200], delta=2 and rf=.04, it returns[.541353,.282707,.175940]instead of[.5,.3,.2]: the inversion uses total rather than excess returns.This retains the constructor's existing
risk_free_ratekwarg and subtracts it only when computing implied weights. Explicit total-return priors can pass the same rate; zero remains the default for excess-return priors. Posterior returns, posterior-covariance convention and normalization are unchanged.The same weight solver's singular fallback incorrectly uses the cached view-space matrix
self._A. The patch uses its local asset-space matrixdelta*covinstead. With duplicate A/C assets and one view it previously raises incompatible dimensions; with three views it silently returns equal thirds instead of[.3,.4,.3].Validation: the original six regressions gave 4 failures / 2 passes. The complete Black–Litterman module plus seven new cases passes: 28 passed. Tests include zero/nonzero rf, explicit/market priors, both singular shapes and unchanged handling of duplicate exact views. Related #541 introduced the fallback; #762 concerns a different posterior-covariance convention; #763/#764 concern raw-weight normalization, which this PR does not alter.
Tested against main a6638d2, Python 3.12, numpy 2.2.6, pandas 3.0.6; sequential single-thread numerical execution. AI-assisted investigation and patch; reproducible tests included. No production-loss claim.