Mixed-integer programming approaches for index tracking and enhanced indexation

N.A. Canakgoz and John Beasley

European Journal of Operational Research, 2009, vol. 196, issue 1, 384-399

Abstract: We consider the problem of reproducing the performance of a stock market index, but without purchasing all of the stocks that make up the index, index tracking. We also consider the problem of out-performing the index, enhanced indexation. We present mixed-integer linear programming formulations of these problems. Our formulations include transaction costs, a constraint limiting the number of stocks that can be purchased and a limit on the total transaction cost that can be incurred. As our formulations of these problems are mixed-integer linear programs we can use a standard solver (Cplex). Numeric results are presented for eight data sets drawn from major markets. The largest of these data sets involves over 2000 stocks.

Keywords: Index; tracking; Enhanced; indexation; Passive; fund; management (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (72)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:196:y:2009:i:1:p:384-399

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