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| Author: | Rudolf, M. Wolter, H-J. Zimmermann, H. |
| Title: | A linear model for tracking error minimization |
| Journal: | Journal of Banking and Finance
1999 : JAN, VOL. 23:1, p. 85-103 |
| Index terms: | Stock markets Models |
| Freeterms: | MAD Tracking error Mean absolute deviation model MinMax model |
| Language: | eng |
| Abstract: | In the paper, four models are investigated for minimizing the tracking error btw. the returns of a portfolio and a benchmark. Due to linear performance fees of fund managers, it is argued that linear deviations give a more accurate description of the investors' risk attitude than squared deviations. It is shown that linear tracking error optimization is equivalent to expected utility maximization and lower partial moment minimization. |
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