Name
Abstract | ||
|---|---|---|
<P>We propose a partial replication strategy to construct risk-averse enhanced index funds. Our model takes into account the parameter estimation risk by defining the asset returns and the return covariance terms as random variables. The variance of the index fund return is required to be below a low-risk threshold with a large probability, thereby limiting the market risk exposure of the investors. The resulting stochastic integer problem is reformulated through the derivation of a deterministic equivalent for the risk constraint and the use of a block decomposition technique. We develop an exact outer approximation method based on the relaxation of some binary restrictions and the reformulation of the cardinality constraint. The method provides a hierarchical organization of the computations with expanding sets of integer-restricted variables and outperforms the Bonmin and the CPLEX solvers. The method can solve large instances (up to 1,000 securities), converges fast, scales well, and is general enough to be applicable to problems with buy-in-threshold constraints.</P> |
Year | DOI | Venue |
|---|---|---|
2013 | 10.1287/ijoc.1120.0533 | INFORMS Journal on Computing |
Keywords | Field | DocType |
large probability,buy-in-threshold constraint,asset return,risk constraint,enhanced index fund,index fund return,exact outer approximation method,outer approximation,risk aversion,cardinality constraint,parameter estimation risk,market risk exposure,large instance,risk-averse enhanced index funds,stochastic programming,portfolio optimization,index fund,risk averse | Mathematical optimization,Random variable,Market risk,Cardinality,Index fund,Portfolio optimization,Estimation theory,Stochastic programming,Mathematics,Covariance | Journal |
Volume | Issue | ISSN |
25 | 4 | 1091-9856 |
Citations | PageRank | References |
5 | 0.45 | 26 |
Authors | ||
2 | ||
Name | Order | Citations | PageRank |
|---|---|---|---|
| Miguel A. Lejeune | 1 | 253 | 21.95 |
| Gülay Samatlı-Paç | 2 | 5 | 0.79 |