In this paper, we propose a linear bi-objective optimization model for enhanced indexation by maximizing average excess return and reducing underperformance over an observation period. The efficient frontier for this problem can be easily computed with standard LP solvers. Results are presented for well-known financial data sets where portfolios selected by our model exhibit several useful properties.
A Linear Risk-Return Model for Enhanced Indexation / Renato Bruni; F. Cesarone; A. Scozzari; Fabio Tardella. - ELETTRONICO. - (2012). ( XIII Workshop on Quantitative Finance L'Aquila, Italy 2012).
A Linear Risk-Return Model for Enhanced Indexation
Fabio Tardella
2012
Abstract
In this paper, we propose a linear bi-objective optimization model for enhanced indexation by maximizing average excess return and reducing underperformance over an observation period. The efficient frontier for this problem can be easily computed with standard LP solvers. Results are presented for well-known financial data sets where portfolios selected by our model exhibit several useful properties.
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