O'Reilly logo

Practical Financial Optimization: A Library of GAMS Models by Soren S Nielson, Andrea Consiglio, Stavros Zenios

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Chapter 7
Index Funds

7.1 Preview

In this chapter we develop the GAMS models for structuring index funds. The development is based on the discussion of Chapters PFO-7 and PFO-10. The following models are discussed in this chapter and the GAMS source code for each is given in the associated FINLIB files:
Structural index funds implements a model for creating an index fund of fixed-income securities by matching two risk factors, duration and currency, based on Section PFO-7.3.1.
• StructuralModel.gms
Co-movement index funds implements a model for creating index funds by minimizing the tracking error between the portfolio return and the target index, based on Section PFO-7.3.2.
• ComovementsModel.gms
Selective hedging for index funds creates an indexation model that provides hedging for the exchange rate risk of an international portfolio, based on Section PFO-10.5.
• SelectiveHedging.gms
We implement and test the GAMS models of this chapter using two data sets stored in Excel files:
BondIndexData.xls contains 500 simulated returns of 254 bonds from three different countries, the United States, Germany, and Switzerland. It also contains scenarios of the USD/DEM and USD/CHF exchange rate, and of the return of the target index.
 
BroadIndexData.xls contains monthly return data for 10 asset classes over a 10-year period, including cash, stock and bond indices from the international markets. We also provide monthly data of the exchange rates covering the same period.
We use the utility ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required