Hi: My understanding of Optimization in equity is as follows: A factor model to match the factor exposures of the index. It accounts for the covariances between the risk factors but the risk sensitivities may change through time. It may also provide misleading results and lead to frequent rebalancing. An optimization approach, however, leads to lower tracking risk than stratified sampling. Not quite sure how much differernce is it when applies to FI, please can someone share their thoughts?
Just to expand, my understanding of using it in FI is that the use of mathematic models to construct the the indexed porfolio to select the assets based on the desired characterstics
Not sure but was optimization applied to FI?