New model revolutionizes portfolio management during market volatility spikes.
During times of high market volatility, strategic asset allocation is crucial for portfolio managers. A new model combining Black-Litterman with Markov Regime-Switching in GARCH process helps investors allocate assets based on changing volatilities and derive optimal portfolios. Testing this model from 1969 to 2011 showed promising results, especially during the 2008 financial crisis. Time-varying asset returns can be managed effectively with this approach.