Index tracking with controlled number of assets using a hybrid heuristic combining genetic algorithm and non-linear programming

Description: In this paper, we discuss the index tracking strategy using mathematical programming. First, we use a non-linear programming formulation for the index tracking problem, considering a limited number of assets. Since the problem is difficult to be solved in reasonable time by commercial mathematical packages, we apply a hybrid solution approach, combining mathematical programming and genetic algorithm. We show the efficiency of the proposed approach comparing the results with optimal solutions, with previous developed methods, and from real-world market indexes. The computational experiments focus on Ibovespa (the most important Brazilian market index), but we also present results for consolidated markets such as S&P 100 (USA), FTSE 100 (UK) and DAX (Germany). The proposed framework shows its ability to obtain very good results (gaps from the optimal solution smaller than 5 % in 8 min of CPU time) even for a highly volatile index from a developing country.
Universidad de Cuenca
http://link.springer.com/article/10.1007%2Fs10479-016-2111-x

Get full text: http://repositorio.educacionsuperior.gob.ec/handle/28000/2710