<ul><li>The combination of Strategic Asset Portfolio (SAP) and Tactical Asset Portfolio (TAP) forms the final optimal portfolio according to the Black-Litterman model.</li><li>Traditional Mean-Variance Optimization faces challenges like making precise forecasts, which are addressed by the Black-Litterman model.</li><li>Black-Litterman model allows for classification-based approach to construct investor views and incorporates Sharpe Ratios for SAP and TAP to determine expected returns.</li><li>The optimization problem in Black-Litterman model is formulated as a convex optimization framework with risk aversion coefficients and penalties for turnover and covariance shrinkage.</li></ul>

Practical implementation on adding Alpha on a strategic allocation using Black-Litterman model…

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