A two-stage approach to the UCITS-constrained index-tracking problem

Strub, Oliver; Trautmann, Norbert (2019). A two-stage approach to the UCITS-constrained index-tracking problem. Computers & operations research, 103, pp. 167-183. Elsevier 10.1016/j.cor.2018.10.002

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Undertakings for Collective Investments in Transferable Securities (UCITS) are investment funds that are regulated by the European Union. UCITS have become increasingly popular, resulting in a total corresponding amount of assets under management of € 8.5 trillion by the end of 2016. We present a two-stage approach to the problem of how to construct a portfolio of assets for a UCITS that aims to replicate the returns of a financial index subject to the constraints imposed by the UCITS regulations. In the first stage, we apply a genetic algorithm that treats subsets of the index constituents as individuals to construct a good feasible solution in a short CPU time. In this genetic algorithm, we use a new representation of subsets, which is the first to exhibit all of the following four desirable properties: feasibility, efficiency, locality, and heritability. In the second stage, we apply local branching based on a new mixed-integer quadratic programming formulation to improve the best solution obtained in the first stage. In a numerical experiment on real-world data, the approach yields very good feasible solutions in a short CPU time.

Item Type:

Journal Article (Original Article)


03 Faculty of Business, Economics and Social Sciences > Department of Business Management > Institute of Financial Management > Professorship for Quantitative Methods in Business Administration

UniBE Contributor:

Strub, Oliver and Trautmann, Norbert


600 Technology > 650 Management & public relations








Juliana Kathrin Zurbrügg

Date Deposited:

16 Oct 2018 08:06

Last Modified:

28 Jan 2020 13:49

Publisher DOI:






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