The portfolio manager of a $1billion superannuation fund currently invested in government bonds wishes to take advantage of the possible stock price recovery following the easing of COVID-19 lockdown but before the end of year when the US presidential election will be held.

a)Explain the two advantages of the Black-Litterman's approach over traditional Markowitz's mean-variance optimization to the portfolio manager. [4]

b)Explain the advantage of using derivatives in portfolio management. [2]

c)Compare and contrast the two approaches of using (i) the ASX200 Index futures and (ii) a suitable option on the ASX200 Index futures to achieve the portfolio manager's investment objectives. [4]