I investigate the question of how to construct a benchmark replicating portfolio consisting of a subset of the benchmark’s components. I consider two approaches: a sequential stepwise regression and another method based on factor models of security returns´ first and second moments. The first...

We propose a novel approach to the benchmark replication problem which uses a minimum tracking error variance as an objective subject to a target expected outperformance. When no budget constraint is imposed on the replicating portfolio, the solution involves that standard hedge portfolio and...

In this article, I propose an extension of the Treynor-Black model to a case where the investor is not fully invested in the stock market at the outset and there is no need to explicitly specify securities' expected returns. I derive explicit tangent portfolio weights based on a factor model of...

I propose a novel investment objective for portfolios fully invested in risky assets only. The new objective is based on achieving the highest possible excess return per unit of variance. The optimal portfolio is a linear combination of the tangent portfolio and the minimum variance portfolio...

I present closed-form analytical solutions to the active mean-variance portfolio management problem relative to a pre-specified benchmark subject to a budget constraint and a beta constraint. The imposition of the beta constraint makes the benchmark relevant to the portfolio problem. I provide...