Metaheuristics for Index-Tracking with Cardinality Constraints

Man Chung Yuen, Sin Chun Ng, Man Fai Leung, Hangjun Che

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

3 Citations (Scopus)

Abstract

As one of the passive investment strategies, index-tracking aims to replicate market indexes to reproduce market performance. It is widely used for long-term investment. Full replication and partial index-tracking are common approaches for index-tracking problems. Although full replication tracks the chosen market index perfectly, the transaction cost is relatively high in practice. Therefore, partial index-tracking is desired that can reduce the transaction cost and avoid illiquid assets. The partial index-tracking approach selects the subset of a benchmark index and applies restrictions for the numbers of stocks with cardinality constraints. The constrained problem is converted into an unconstrained problem by adding the penalty term. This paper is concerned with the sparse index-tracking problem with cardinality constraints by various metaheuristics. Various metaheuristics are used to deal with the sparse index-tracking problem, and their performances are compared. Also, various penalty values are adopted to test the performance of the compared algorithm.

Original languageEnglish
Title of host publication2021 11th International Conference on Information Science and Technology, ICIST 2021
Pages646-651
Number of pages6
ISBN (Electronic)9781665412667
DOIs
Publication statusPublished - 21 May 2021
Event11th International Conference on Information Science and Technology, ICIST 2021 - Chengdu, China
Duration: 21 May 202123 May 2021

Publication series

Name2021 11th International Conference on Information Science and Technology, ICIST 2021

Conference

Conference11th International Conference on Information Science and Technology, ICIST 2021
Country/TerritoryChina
CityChengdu
Period21/05/2123/05/21

Keywords

  • cardinality constraints
  • constrained optimization
  • Index-tracking
  • metaheuristics

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