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Tracking a financial benchmark using a few assets

Abstract:

We study the problem of tracking a financial benchmark - a continuously compounded growth rate or a stock market index - by dynamically managing a portfolio consisting of a small number of traded stocks in the market. In either case, we formulate the tracking problem as an instance of the stochastic linear quadratic control (SLQ), involving indefinite cost matrices. As the SLQ formulation involves a discounted objective over an infinite horizon, we first address the issue of stabilizability. ...

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Publisher copy:
10.1287/opre.1050.0260

Authors


Journal:
Operations Research
Volume:
54
Issue:
2
Pages:
232-246
Publication date:
2006-03-05
DOI:
EISSN:
1526-5463
ISSN:
0030-364X
URN:
uuid:ad2daa08-2d5b-45ac-8c3a-b32770e4c241
Source identifiers:
148097
Local pid:
pubs:148097

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