In financial markets, it is sometimes impractical to invest in all of the assets that are...
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In financial markets, it is sometimes impractical to invest in all of the assets that are incorporated into a specified target portfolio (such as market portfolio or a given efficient portfolio), simply because the number of total assets N could be too large. One alternative is to find the portfolio, made up of a given subset of n assets that tracks the specified portfolio most closely - in the sense of minimizing var (rP (M) the variance of the difference in returns, aptly named tracking error. Suppose that the target portfolio has a random rate of return rMand nassets you are considering for your portfolio have random rates of return rand weights afor i=1, 2,.,n where rp= d;rj+.. an In- ...... a) Define the other parameters as needed and formulate the optimization problem with the appropriate objective function and the constraint(s). In financial markets, it is sometimes impractical to invest in all of the assets that are incorporated into a specified target portfolio (such as market portfolio or a given efficient portfolio), simply because the number of total assets N could be too large. One alternative is to find the portfolio, made up of a given subset of n assets that tracks the specified portfolio most closely - in the sense of minimizing var (rP (M) the variance of the difference in returns, aptly named tracking error. Suppose that the target portfolio has a random rate of return rMand nassets you are considering for your portfolio have random rates of return rand weights afor i=1, 2,.,n where rp= d;rj+.. an In- ...... a) Define the other parameters as needed and formulate the optimization problem with the appropriate objective function and the constraint(s).
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Related Book For
Data Analysis and Decision Making
ISBN: 978-0538476126
4th edition
Authors: Christian Albright, Wayne Winston, Christopher Zappe
Posted Date:
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