IDEAS home Printed from https://ideas.repec.org/a/rsk/journ4/2161051.html
   My bibliography  Save this article

Minimizing tracking error while restricting the number of assets

Author

Listed:
  • Thomas F. Coleman, Yuying Li, Jay Henniger

Abstract

ABSTRACT Tracking error minimization is commonly used by the traditional passive fund managers as well as alternative portfolio (for example, hedge fund) managers. We propose a graduated non-convexity method to minimize portfolio tracking error with the total number of assets no greater than a specified integer K. The solution of this tracking error minimization problem is a global minimizer of a minimization problem with a discontinuous counting function in a constraint. We attempt to track the globally minimal tracking error portfolio by approximating the discontinuous counting function with a sequence of continuously differentiable non-convex functions, a graduated non-convexity process. We discuss the advantages of this approach, present numerical results, and compare it with two methods from recent literature.

Suggested Citation

Handle: RePEc:rsk:journ4:2161051
as

Download full text from publisher

File URL: https://www.risk.net/system/files/import/protected/digital_assets/4844/jor_v8n4a2.pdf
Download Restriction: no
---><---

More about this item

Statistics

Access and download statistics

Corrections

All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rsk:journ4:2161051. See general information about how to correct material in RePEc.

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

We have no bibliographic references for this item. You can help adding them by using this form .

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thomas Paine (email available below). General contact details of provider: https://www.risk.net/journal-of-risk .

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.