A heuristic approach for index tracking problem: A case study of the Tehran exchange price index

Asian Academy of Management & Penerbit Universiti Sains Malaysia
Publication Type:
Journal Article
Asian Academy of Management Journal, 2013, 18 (1), pp. 19 - 34
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ndex tracking, 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 an NP-Hard problem, and sophisticated approaches have been proposed in the literature to solve this problem. This paper presents an easy-to-implement heuristic solution to this complex problem. The proposed approach was implemented to develop a tracking portfolio of 438 stocks listed in the Tehran Exchange Price Index. The numerical results indicate that the approach is able to identify quality solutions within reasonable model runtime.
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