Questions tagged [tracking-error]

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Active risk and tracking error (from AQR paper)

From this paper (https://www.aqr.com/Insights/Research/Alternative-Thinking/Was-That-Intentional-Ways-to-Improve-Your-Active-Risk) I would like to know how to solve for the amount of active risk (i.e. ...
Jeweller89's user avatar
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Subclass Tracking Error

I am currently doing a master program project regarding tracking errors. My assignment is to evaluate following question: How to find out the correlation structure of the passive (=second order/sub-...
tr_ad's user avatar
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What is the correct method to maximize information ratio ex ante of a 150/50 portfolio against the S&P500

I have no problem forecasting and minimize ex ante information ratio for a market neutral portfolio, because the benchmark is just zero and you are just minimizing portfolio variance while maximizing ...
xxanissrxx's user avatar
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Methods for Constructing Mimicking Portfolios for Observable Factors

I've created some macroeconomic factors (e.g. analogs of real GDP growth) that I believe have explanatory power for asset returns. By a factor here, I mean a stationary time-series of real numbers. I'...
rubikscube09's user avatar
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Constructing a Replicating Portfolio : Regression on Individual Constituents or their Average?

I would like to replicate a portfolio of stocks $S_1, \cdots, S_n$ using other instruments, $X_1, \cdots, X_m$. Using the letters above with a subscript $t$ to denote the forward returns over some ...
rubikscube09's user avatar
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How to calculate Annualized tracking error of an Index fund given daily historical data?

Let's say I have Fund A and Benchmark B and the daily data for both, stretching back 5 years. To find the Annualized Tracking Error (ATE), would this method be correct: Compute percentage change of A'...
SamuraiJack's user avatar
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What to use for Tracking error minimization

What programs/packages can one use to minimize a portfolio's tracking error? What I am trying to do is see what ex post TE, portfolio returns and variance can be achieved when adding CSR constraints ...
Wouter Adolfsen's user avatar
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Minimizing tracking error for a 150 / 50 portfolio against the S&P500

I am trying to minimize tracking error ex-ante for a 150 / 50 portfolio, eg. it is 150 units long, 50 units short and market exposure of 100 units. It uses all 500 stock in the S&P500. I've ...
xxanissrxx's user avatar
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"fix" a sample covariance matrix which is not positive semidefinite by using daily returns instead of monthly

In the portfolio optimization problem at hand, one of the constraints is that the tracking error should not be greater than $\gamma$. The constraint is therefore: $(\textbf{x}-\textbf{w})^\mathrm{T}\...
D. B.'s user avatar
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How do you explain consistently making money with discrete hedging a call option?

In a backtest I did, I'm selling a call option and buying a delta amount of the underlying (calculated using implied vol). Now I know in the limit case of continuous hedging I end up paying a PnL ...
user121416's user avatar