A NEW LP MODEL FOR ENHANCED INDEXATION

Renato Bruni (), Francesco Cesarone, Andrea Scozzari and Fabio Tardella

No 168, Departmental Working Papers of Economics - University 'Roma Tre' from Department of Economics - University Roma Tre

Abstract: Enhanced Indexation is the problem of selecting a portfolio that should produce excess return with respect to a given benchmark index. In this work we propose a linear bi-objective optimization approach to Enhanced Indexation that maximizes average excess return and minimizes underperformance over a learning period. This can be formulated as a simple Linear Programming problem that is solved to optimality by standard LP codes. Moreover, we investigate conditions that guarantee or forbid the existence of a portfolio strictly outperforming the index. We present extensive computational analysis of the results on publicly available real-world nancial datasets, including comparison with previous results, performance and diversi cation analysis, and empirical veri cation of some of the proposed theoretical results.

Keywords: Enhanced Indexation; Linear Programming; Performance Analysis; Portfolio Management; No Arbitrage condition. (search for similar items in EconPapers)
JEL-codes: C61 D81 G11 (search for similar items in EconPapers)
Pages: 23
Date: 2012-11
New Economics Papers: this item is included in nep-cmp
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://dipeco.uniroma3.it/public/wp%20168.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rtr:wpaper:0168

Access Statistics for this paper

More papers in Departmental Working Papers of Economics - University 'Roma Tre' from Department of Economics - University Roma Tre Via Silvio d'Amico 77, - 00145 Rome Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Telephone for information ().