Sparse index clones via the sorted ℓ1-Norm
Index tracking and hedge fund replication aim at cloning the return time series properties of a given benchmark, by either using only a subset of its original constituents or by a set of risk factors. In this paper, we propose a model that relies on the Sorted (Formula presented.) Penalized Estimator, called SLOPE, for index tracking and hedge fund replication. We show that SLOPE is capable of not