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Fast Methods for the Index Tracking Problem

In: Operations Research Proceedings 2017

Author

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  • Dag Haugland

    (University of Bergen)

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.

Suggested Citation

  • Dag Haugland, 2018. "Fast Methods for the Index Tracking Problem," Operations Research Proceedings, in: Natalia Kliewer & Jan Fabian Ehmke & Ralf Borndörfer (ed.), Operations Research Proceedings 2017, pages 277-283, Springer.
    • Handle: RePEc:spr:oprchp:978-3-319-89920-6_38
    DOI: 10.1007/978-3-319-89920-6_38
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