Mixed-integer programming approaches for index tracking and enhanced indexation |
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Authors: | N.A. Canakgoz J.E. Beasley |
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Affiliation: | CARISMA, Mathematical Sciences, Brunel University, Uxbridge UB8 3PH, United Kingdom |
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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. |
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Keywords: | Index tracking Enhanced indexation Passive fund management |
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