Tracking models and the optimal regret distribution in asset allocation

Abstract

We present a tracking model for asset allocation that tracks desired investment goals. The model is shown to be optimal with respect to an investor's ‘regret distribution’, the cumulative distribution of the difference between the revenue under perfect foresight and that possible without foresight. Relationships with Markowitz mean/variance models are also explored. Copyright © 1992 John Wiley & Sons, Ltd