On a Local-Search Heuristic for a Class of Tracking Error Minimization Problems in Portfolio Management

Ulrich Derigs () and Nils-H. Nickel ()

Annals of Operations Research, 2004, vol. 131, issue 1, 45-77

Abstract: In this paper we describe a 2-phase simulated annealing heuristic approach for a special class of portfolio management problems: the problem of optimizing a stock fund with respect to tracking error and transaction costs over time subject to a set of complex constraints with a linear factor return model “feeding” the objective function with data. Our results on managing two real-world funds of a major German capital investment company have shown that this meta-heuristic provides proposals for the fund manager which are feasible with respect to the investment guidelines and excellent in quality in acceptable time. Thus the approach is ideally suited to be used routinely and interactively within a decision support system to assist the fund manager in his complex task of portfolio control and optimization. Copyright Kluwer Academic Publishers 2004

Keywords: portfolio optimization; tracking error problem; investment guidelines; multi-factor return model; transaction costs; meta-heuristics; simulated annealing (search for similar items in EconPapers)
Date: 2004
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/10.1023/B:ANOR.0000039512.98833.5a (text/html)
Access to full text is restricted to subscribers.

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:spr:annopr:v:131:y:2004:i:1:p:45-77:10.1023/b:anor.0000039512.98833.5a

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10479

DOI: 10.1023/B:ANOR.0000039512.98833.5a

Access Statistics for this article

Annals of Operations Research is currently edited by Endre Boros

More articles in Annals of Operations Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().