Index Tracking and Enhanced Indexation Using a Parametric Approach
57 Pages Posted: 5 Apr 2009 Last revised: 3 Nov 2009
Date Written: 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.
Keywords: Index Tracking, Enhanced Indexation
JEL Classification: G11
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