The application of robust optimization for index tracking by using of single index model Based on fifty active company index of Tehran stock exchange

One advantage of constructing an equity index fund as a passive approach of investment that follows a predefined strategy is that, this method doesn’t need forecasting of stock returns. This approach reduces the transaction costs too. By index tracking the portfolio is diversified and has low transactions. So an equity index fund has low management costs. In this paper we used robust optimization approach for mathematical model that tries to reproduce the performance of an index. Robust optimization method doesn’t do any assumption about distribution of uncertain parameters of optimization problem. For this goal we considered fifty more active company index of Tehran stock exchange as target index from 1390/7/1 to 1392/10/1. The results of out of sample experiment shows that the tracking error of portfolio that constructed by robust model is lower than portfolio that constructed by non robust model. These results shows that using robust optimization approach to considering the uncertainty of parameters can improve the performance of model.