Modern portfolio theories? (MPTs) currency is high in academia and among business students, but has enjoyed a lukewarm reception in the investment community. In this article, Drobetz (2001) delivers a brilliant lesson as to why the Black-Litterman approach to portfolio optimization trumps standard portfolio theory.

• Identify and analyze the deficiencies in standard portfolio theory.
• Of the five alternatives to computing the variance-covariance matrix, which alternative is most appropriate for your model?
• Why?