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Optimization Methods for Financial Index Tracking

2018 Finance
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Release : 2018
Genre : Finance
Kind : eBook
Book Rating : 659/5 ( reviews)

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Book Synopsis Optimization Methods for Financial Index Tracking by : Konstantinos Benidis

Download or read book Optimization Methods for Financial Index Tracking written by Konstantinos Benidis. This book was released on 2018. Available in PDF, EPUB and Kindle. Book excerpt: Index tracking is a very popular passive investment strategy. Since an index cannot be traded directly, index tracking refers to the process of creating a portfolio that approximates its performance. A straightforward way to do that is to purchase all the assets that compose an index in appropriate quantities. However, to simplify the execution, avoid small and illiquid positions, and large transaction costs, it is desired that the tracking portfolio consists of a small number of assets, id est, we wish to create a sparse portfolio. Although index tracking is driven from the financial industry, it is in fact a pure signal processing problem: a regression of the financial historical data subject to some portfolio constraints with some caveats and particularities. Furthermore, the sparse index tracking problem is similar to many sparsity formulations in the signal processing area in the sense that it is a regression problem with some sparsity requirements. In its original form, sparse index tracking can be formulated as a combinatorial optimization problem. A commonly used approach is to use mixed-integer programming (MIP) to solve small sized problems. Nevertheless, MIP solvers are not applicable for high-dimensional problems since the running time can be prohibiting for practical use. The goal of this monograph is to provide an in-depth overview of the index tracking problem and analyze all the caveats and practical issues an investor might have, such as the frequent rebalancing of weights, the changes in the index composition, the transaction costs, et cetera Furthermore, a unified framework for a large variety of sparse index tracking formulations is provided. The derived algorithms are very attractive for practical use since they provide efficient tracking portfolios orders of magnitude faster than MIP solvers.

Optimization Methods for Financial Index Tracking

2018-06-07
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Release : 2018-06-07
Genre :
Kind : eBook
Book Rating : 642/5 ( reviews)

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Book Synopsis Optimization Methods for Financial Index Tracking by : Konstantinos Benidis

Download or read book Optimization Methods for Financial Index Tracking written by Konstantinos Benidis. This book was released on 2018-06-07. Available in PDF, EPUB and Kindle. Book excerpt: An in-depth overview of the index tracking problem analyzing all the caveats and practical issues an investor might have, such as the frequent rebalancing of weights, the changes in the index composition, the transaction costs, etc.

Optimization Methods in Finance

2006-12-21 Mathematics
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Release : 2006-12-21
Genre : Mathematics
Kind : eBook
Book Rating : 700/5 ( reviews)

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Book Synopsis Optimization Methods in Finance by : Gerard Cornuejols

Download or read book Optimization Methods in Finance written by Gerard Cornuejols. This book was released on 2006-12-21. Available in PDF, EPUB and Kindle. Book excerpt: Optimization models play an increasingly important role in financial decisions. This is the first textbook devoted to explaining how recent advances in optimization models, methods and software can be applied to solve problems in computational finance more efficiently and accurately. Chapters discussing the theory and efficient solution methods for all major classes of optimization problems alternate with chapters illustrating their use in modeling problems of mathematical finance. The reader is guided through topics such as volatility estimation, portfolio optimization problems and constructing an index fund, using techniques such as nonlinear optimization models, quadratic programming formulations and integer programming models respectively. The book is based on Master's courses in financial engineering and comes with worked examples, exercises and case studies. It will be welcomed by applied mathematicians, operational researchers and others who work in mathematical and computational finance and who are seeking a text for self-learning or for use with courses.

Portfoliomanagement

2009
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Release : 2009
Genre :
Kind : eBook
Book Rating : 318/5 ( reviews)

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Book Synopsis Portfoliomanagement by : Klaus Grobys

Download or read book Portfoliomanagement written by Klaus Grobys. This book was released on 2009. Available in PDF, EPUB and Kindle. Book excerpt: Peter Norman, who is in the head management of Sjunde AP-fonden, which is one of the five largest pension funds in Sweden and accounts for 66 milliard Swedish crones, admits that they have decided to employ passive Index-Tracking strategies, because they expect to receive a higher profit by investing in passive strategies. Sidea [2009], who works as editor of the magazine Veckans Affärer, argues that traditional active funds management is built on the management's analysis to figure out and invest in stocks which are underpriced. Considering this, these strategies are built on expectations which may be quite different from each other. This relatively expansive sort of active management needs a high degree of analyst competence, forecast making and trading which involve clearly high costs. This book presents an overview about passive Index-Tracking Strategies as well as an empirical application. The reader will be able to understand the discussed methods and be able to construct strategies of their own, too. Apart from traditional strategies, Klaus Grobys presents the application of more sophisticated models based on cointegration theory as well as a new Pricing model, introduced in his academic final thesis at the University of Kiel.

Sparse Portfolios for High-Dimensional Financial Index Tracking

2018
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Release : 2018
Genre :
Kind : eBook
Book Rating : /5 ( reviews)

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Book Synopsis Sparse Portfolios for High-Dimensional Financial Index Tracking by : Konstantinos Benidis

Download or read book Sparse Portfolios for High-Dimensional Financial Index Tracking written by Konstantinos Benidis. This book was released on 2018. Available in PDF, EPUB and Kindle. Book excerpt: Index tracking is a popular passive portfolio management strategy that aims at constructing a portfolio that replicates or tracks the performance of a financial index. The tracking error can be minimized by purchasing all the assets of the index in appropriate amounts. However, to avoid small and illiquid positions and large transaction costs, it is desired that the tracking portfolio consists of a small number of assets, i.e., a sparse portfolio. The optimal asset selection and capital allocation can be formulated as a combinatorial problem. A commonly used approach is to use mixed-integer programming (MIP) to solve small sized problems. Nevertheless, MIP solvers can fail for high-dimensional problems while the running time can be prohibiting for practical use. In this paper we propose efficient and fast index tracking algorithms that automatically perform asset selection and capital allocation under a set of general convex constraints. A special consideration is given to the case of the non-convex holding constraints and to the downside risk tracking measure. Further, we derive specialized algorithms with closed-form updates for particular sets of constraints. Numerical simulations show that the proposed algorithms match or outperform existing methods in terms of performance, while their running time is lower by many orders of magnitude.

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