Meta-heuristic based decision support for portfolio optimisation with a case study on tracking error minimization in passive portfolio management

In this paper we describe the concept and design of a meta-heuristic based decision support system generator (DSS-generator) for portfolio optimization. We report extensively on experience with the application of a specific DSS that has been customized for controlling and optimizing passively managed stock funds. Here, the constraints from the law on investment trust companies as well as several fund specific guidelines prohibit that the benchmark can be identically reproduced. For measuring the performance of the portfolio a tracking error model with data stemming from a factor model is applied. Our results show that the system provides proposals for the fund manager in acceptable time which are feasible with respect to the guidelines and excellent in quality.