Varsei, Mohsen and Shams, Naser and Fahimnia, Behnam and Yazdanpanah, Abbas
(2013)
A Heuristic Approach To The Index Tracking
Problem: A Case Study Of The Tehran
Exchange Price Index.
Asian Academy of Management Journal (AAMJ), 18 (1).
pp. 1-16.
ISSN 1394-2603
Abstract
Index 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 easyto-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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