Investments, tenth edition

  Step 5: Portfolio Optimization 

 At this point, the portfolio optimization follows the Markowitz procedure of Chapter 7, 

with an input list that replaces baseline expectations with the conditional expectations 

 arising from the manager’s view. 

  Spreadsheet 27.2  presents the calculations of the BL model. Table 1 of the spreadsheet 

shows the calculation of the benchmark forecasts and Table 2 incorporates a view to arrive 

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  C H A P T E R  

2 7

  The Theory of Active Portfolio Management

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at the revised (conditional) expectations.  Figure  27.5  shows portfolio performance mea-

sured by  M -square for various levels of confidence in the view when the view is correct