Index Tracking and Enhanced Indexation Using a Parametric Approach
Northwestern University - Department of Industrial Engineering and Management Sciences
John R. Birge
University of Chicago - Booth School of Business
November 1, 2009
Based on the work of Brandt, Santa-Clara and Valkanov (2009), we formulate an index tracking and enhanced indexation model using a parametric approach. The portfolio weights are modeled as functions of assets characteristics and similarity measures of the assets with the index to track. This approach permits to handle non-linear and non-convex objectives functions that are common in index tracking and enhanced indexation. An empirical implementation and analysis of the characteristics are presented for the S&P500 index.
Number of Pages in PDF File: 57
Keywords: Index Tracking, Enhanced Indexation
JEL Classification: G11working papers series
Date posted: April 5, 2009 ; Last revised: November 3, 2009
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