A HEURISTIC APPROACH FOR INDEX TRACKING PROBLEM: A CASE STUDY OF TEHRAN EXCHANGE PRICE INDEX

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Published: Jan 31, 2013
Keywords:
Index tracking, portfolio selection, fund management, heuristic approach

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Mohsen Varsei
Department of Industrial Engineering, Amirkabir University of Technology, Tehran, Iran
Naser Shams
Department of Industrial Engineering, Amirkabir University of Technology, Tehran, Iran
Behnam Fahimnia
School of Management, University of South Australia, Adelaide, Australia
Abbas Yazdanpanah
Department of Computer & Information Technology Engineering, Amirkabir University of Technology, Tehran, Iran

Abstract

Index tracking problem, the most popular form of passive fund management, is a portfolio selection problem in which the return of one of the stock market indexes is reproduced by creating a tracking portfolio consisting of a subset of the stocks included in the index. Index tracking has been known as a NP-Hard problem and sophisticated solution approaches have been proposed in the literature to solve this problem. This paper presents an easy-to-implement heuristic solution to tackle this complex problem. The proposed approach is implemented to develop a tracking portfolio from 438 stocks listed in Tehran Exchange Price Index. The numerical results indicate that the approach is able to find quality solutions within reasonable model runtime.

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How to Cite
Mohsen Varsei, Naser Shams, Behnam Fahimnia, & Abbas Yazdanpanah. (2013). A HEURISTIC APPROACH FOR INDEX TRACKING PROBLEM: A CASE STUDY OF TEHRAN EXCHANGE PRICE INDEX. Asian Academy of Management Journal, 18(1), 19–34. https://ejournal.usm.my/aamj/article/view/aamj_vol18-no-1-2013_2
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Vol. 18 No. 1 (2013)
Section
Original Articles
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