In this paper we show how a Bayesian network can be used to represent a traditional financial model of portfolio return. Then we show how expert subjective judgement can be included in the Bayesian network model. The output of the model is the posterior marginal probability distribution of the portfolio return. This posterior return distribution can be used to obtain expected return, return variance, and value-at-risk.
The volume Computational Finance 1999 contains a selection of the papers presented at Computational Finance '99 at the Stern School of Business, New York Univ. in January 1999. This conference is an annual refereed meeting, which was previosly called "Neural Networks in the Capital Markets."
Shenoy, C. and P. P. Shenoy (2000), "Bayesian Network Models of Portfolio Risk and Return," in Y. S. Abu-Mostafa, B. LeBaron, A W. Lo, and A. S. Weigand (eds.), Computational Finance 1999, pp. 87--106, The MIT Press, Cambridge, MA.
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