JOURNAL ARTICLE

Genetic Mimicking Portfolios for ETF Arbitrage.

  • Published In: Journal of Fixed Income, 2026, v. 35, n. 4. P. 43 1 of 3

  • Database: Business Source Ultimate 2 of 3

  • Authored By: Crego, Julio A.; Kvaerner, Jens Soerlie; Sommervoll, Åvald Åslaugson; Sommervoll, Dag Einar; Stevens, Niek 3 of 3

Abstract

Financial markets are full of securities whose price depends on other securities that are often difficult to trade. We develop a method to identify a liquid mimicking portfolio that tracks a de facto nontradable asset. Our method combines a genetic algorithm with nonnegative least squares. We apply it to the corporate ETF market. An arbitrage portfolio that takes a short position in the ETF with the highest price relative to its net asset value and a long position in the mimicking portfolio generates a Sharpe ratio of 3. The return on the mimicking portfolio correlates negatively with the return on the short position, is responsible for about one-third of the Sharpe ratio, and reduces expected tail loss by two-thirds. [ABSTRACT FROM AUTHOR]

Additional Information

  • Source:Journal of Fixed Income. 2026/04, Vol. 35, Issue 4, p43
  • Document Type:Article
  • Subject Area:Business and Management
  • Publication Date:2026
  • ISSN:1059-8596
  • DOI:10.3905/jfi.2026.1.225
  • Accession Number:193016452
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