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Operations Research Proceedings 2017 pp 277–283Cite as

Fast Methods for the Index Tracking Problem

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Part of the book series: Operations Research Proceedings ((ORP))

Abstract

The index tracking problem asks for a portfolio of a restricted number of assets from a stock market index, such that the portfolio resembles the index as closely as possible. The tracking error to be minimized is a quadratic function of the difference between the portfolio and the index weights. The index tracking problem is strongly NP-hard. In this work, we develop construction and simprovement methods that are one order of magnitude faster than recently suggested methods. Computational experiments confirm the favorable running times, but also show that the faster methods produce portfolios with larger tracking errors.

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References

  1. Canakgoz, N. A., & Beasley, J. E. (2009). Mixed-integer programming approaches for index tracking and enhanced indexation Eur. The Journal of the Operational Research, 196(1), 384–399.

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  2. Guastaroba, G., & Speranza, M. G. (2012). Kernel search: An application to the index tracking problem. European Journal of Operational Research, 217(1), 54–68.

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  3. Jansen, R., & van Dijk, R. (2002). Optimal benchmark tracking with small portfolios. The Journal of Portfolio Management, 28(2), 33–39.

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  4. Mutunge, P., & Haugland, D. (2018). Minimizing the tracking error of cardinality constrained portfolios. Computers and Operations Research, 90, 33–41.

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Author information

Authors and Affiliations

  1. University of Bergen, Bergen, Norway

    Dag Haugland

Authors
  1. Dag Haugland
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Correspondence to Dag Haugland .

Editor information

Editors and Affiliations

  1. Department of Information Systems, Freie Universität Berlin, Berlin, Germany

    Natalia Kliewer

  2. Management Science Group, Otto-von-Guericke Universität Magdeburg, Magdeburg, Germany

    Jan Fabian Ehmke

  3. Department of Mathematics, Freie Universität Berlin, Berlin, Germany

    Ralf Borndörfer

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Haugland, D. (2018). Fast Methods for the Index Tracking Problem. In: Kliewer, N., Ehmke, J., Borndörfer, R. (eds) Operations Research Proceedings 2017. Operations Research Proceedings. Springer, Cham. https://doi.org/10.1007/978-3-319-89920-6_38

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