An optimisation approach to constructing an exchange-traded fund

Valle, Cristiano Arbex; Meade, Nigel; Beasley, John E.

doi:10.1007/s11590-014-0779-x

Cited by 3 publications

(1 citation statement)

References 30 publications

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“…The models we propose are linear integer programming models. Recently, there have emerged several mixed-integer linear models related to tracking an index see (Guastaroba and Speranza, 2012), (Filippi et al, 2016), and (Mezali and Beasley, 2014) and related to constructions of ETFs (Valle et al, 2015). The main differences in the work in this paper are that (1) the use of the cluster-based approach will not require asset return information directly in the models and (2) the cluster-model has explicit additional (e.g.…”

Section: Introductionmentioning

confidence: 99%

A constrained cluster-based approach for tracking the S&P 500 index

Kwon

Costa

2017

International Journal of Production Economics

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A B S T R A C TWe consider the problem of tracking a benchmark target portfolio of financial securities in particular the S&P 500. Linear integer programming models are developed that seeks to track a target portfolio using a strict subset of securities from the benchmark portfolio. The models represent a clustering approach to select securities and also include additional constraints that aim to control risk and transactions costs. Lagrangian and semi-Lagrangian methods are developed to compute solutions to the tracking models. The computational results show the effectiveness of the linear tracking models and the computational methods in tracking the S&P 500. Overall, the models and methods presented can serve as the basis of the optimization module in an optimization-based decision support for creating tracking portfolios.

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Section: Introductionmentioning

confidence: 99%

A constrained cluster-based approach for tracking the S&P 500 index

Kwon

Costa

2017

International Journal of Production Economics

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A systematic literature review on solution approaches for the index tracking problem

Cezar

Silva

et al. 2023

IMA Journal of Management Mathematics

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The passive management approach offers conservative investors a way to reduce risk concerning the market. This investment strategy aims at replicating a specific index, such as the NASDAQ Composite or the FTSE100 index. The problem is that buying all the index’s assets incurs high rebalancing costs, and this harms future returns. The index tracking problem concerns building a portfolio that follows a specific benchmark with fewer transaction costs. Since a subset of assets is required to solve the index problem this class of problems is NP-hard, and in the past years, researchers have been studying solution approaches to obtain more practical tracking portfolios. This work brings an analysis, spanning the last three decades, of the advances in mathematical approaches for index tracking. The systematic literature review covered important issues, such as the most relevant research areas, solution methods, and model structures. Special attention was given to the exploration and analysis of metaheuristics applied to the index tracking problem.

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The Effects of the Introduction of Volume-Based Liquidity Constraints in Portfolio Optimization with Alternative Investments

Barro,

Basso,

Funari

et al. 2024

Mathematics

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Recently, liquidity issues in financial markets and portfolio asset management have attracted much attention among investors and scholars, fuelling a stream of research devoted to exploring the role of liquidity in investment decisions. In this paper, we aim to investigate the effects of introducing liquidity in portfolio optimization problems. For this purpose, first we consider three volume-based liquidity measures proposed in the literature and we build a new one particularly suited to portfolio optimization. Secondly, we formulate an extended version of the Markowitz portfolio selection problem, named mean–variance–liquidity, wherein the goal is to minimize the portfolio variance subject to the usual constraint on the expected portfolio return and an additional constraint on the portfolio liquidity. Thirdly, we consider a sensitivity analysis, with the aim to assess the trade-offs between liquidity and return, on the one hand, and between liquidity and risk, on the other hand. In the second part of the paper, the portfolio optimization framework is applied to a dataset of US ETFs comprising both standard and alternative, often illiquid, investments. The analysis is carried out with all the liquidity measures considered, allowing us to shed light on the relationships among risk, return and liquidity. Finally, we study the effects of the introduction of a Bitcoin ETF, as an asset with an extremely high expected return and risk.

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An optimisation approach to constructing an exchange-traded fund

Cited by 3 publications

References 30 publications

A constrained cluster-based approach for tracking the S&P 500 index

A constrained cluster-based approach for tracking the S&P 500 index

A systematic literature review on solution approaches for the index tracking problem

The Effects of the Introduction of Volume-Based Liquidity Constraints in Portfolio Optimization with Alternative Investments

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