AnswerBun.com

Multiple tracking error constraints - is this problem convex?

Quantitative Finance Asked by cune on December 11, 2020

Let’s say I have a return forecast for each stock in the DAX index. I also have a covariance matrix for these 30 stocks.

I want to solve for the 30 weights by maximising the forecast portfolio return, subject to keeping the overall volatility at a certain target level, and subject to multiple tracking error constraints: the overall t.e. for the entire portfolio should be less than or equal to 1%, and tracking error for each sector to also be below or equal to 1% (relative to dax and each Dax sector, respectively).

So, the objective function is linear, but I have multiple quadratic constraints.

Is this a convex problem? Could there exist multiple local minima?

One Answer

The problem being convex depends on the structure of the quadratic constraints in this case, particularly if the quadratic part is positive semi-definite. So you need to write out the constraints in matrix form and do the algebra to check.

Answered by river_rat on December 11, 2020

Add your own answers!

Related Questions

Compute the (Net) Present Value

3  Asked on December 5, 2020 by clubkli

     

Why do not include loan payments in NPV?

3  Asked on December 3, 2020 by henrique-ramos

   

simulate volatility surface

1  Asked on November 27, 2020 by therealcode

       

Market Impact proportional to the bid-ask spread

1  Asked on November 12, 2020 by mbz0

   

Is there a good backtesting package in R?

3  Asked on October 17, 2020 by alonch7

   

How to deal with missing stock returns?

1  Asked on October 14, 2020 by johncena12345678

       

FX Carry Trade and how to calculate it

0  Asked on September 12, 2020 by zgz

 

Ask a Question

Get help from others!

© 2023 AnswerBun.com. All rights reserved. Sites we Love: PCI Database, UKBizDB, Menu Kuliner, Sharing RPP