Sparse Index Tracking: Simultaneous Asset Selection and Capital Allocation via $\ell_0$-Constrained Portfolio

arXiv:2309.10152v3 Announce Type: replace-cross
Abstract: Sparse index tracking is a prominent passive portfolio management strategy that constructs a sparse portfolio to track a financial index. A sparse portfolio is preferable to a full portfolio in terms of reducing transaction costs and avoiding illiquid assets. To achieve portfolio sparsity, conventional studies have utilized $\ell_p$-norm regularizations as a continuous surrogate of the $\ell_0$-norm regularization. Although these formulations can construct sparse portfolios, their practical application is challenging due to the intricate and time-consuming …

abstract arxiv capital costs cs.ce cs.lg financial index management portfolio q-fin.pm sparsity strategy terms tracking type via