Passive asset management has emerged in the last decades because, in most cases, active portfolio managers are not able to beat their benchmark. Skewed distributions are witnessed every day in financial markets and the need to model them is gaining momentum. This article deals with passive management of skewed distributed assets and suggests how to build a portfolio with a tracking error constrain while minimizing the number of holdings necessary to track the benchmark. In addition, the suggested model provides a conservative estimate of the tracking error and, thus, does not require an adjustment to prevent a breach of the risk budget.
Bufalo, D., Bufalo, M., Cesarone, F., DI PAOLO, A., Orlando, G. (2023). A benchmark-asset principal component factorization for index tracking on skewed markets. In XLVII Annual Meeting of the Italian Association for Mathematics Applied to Social and Economic Sciences.
A benchmark-asset principal component factorization for index tracking on skewed markets
Francesco Cesarone
;Alessio Di Paolo;
2023-01-01
Abstract
Passive asset management has emerged in the last decades because, in most cases, active portfolio managers are not able to beat their benchmark. Skewed distributions are witnessed every day in financial markets and the need to model them is gaining momentum. This article deals with passive management of skewed distributed assets and suggests how to build a portfolio with a tracking error constrain while minimizing the number of holdings necessary to track the benchmark. In addition, the suggested model provides a conservative estimate of the tracking error and, thus, does not require an adjustment to prevent a breach of the risk budget.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
