DEPARTMENT OF MANAGEMENT STUDIES
INDIAN INSTITUTE OF SCIENCE
FRIDAY SEMINAR
Speaker: Dr. Sumanjay Dutta
Visiting Faculty, Madras School of Economics
Date & Time: 28th Nov 2025 [Friday]:
11:00 AM
Venue: SEMINAR HALL [Management Studies]
Title: ” ADVANCING PORTFOLIO OPTIMIZATION: ADMM EXTENSIONS FOR RISK AND TRACKING EFFICIENCY “
Abstract:
This work extends the Alternating Direction Method of Multipliers (ADMM) framework to two key problems in portfolio optimization – index tracking and risk-based portfolio construction. Index tracking seeks to replicate the return behaviour of a benchmark index using a sparse subset of available assets. By holding only a limited number of securities, such portfolios reduce transaction costs and enhance manageability while maintaining close alignment with benchmark performance. Risk-based portfolios, in contrast, aim to control or equalize the distribution of risk among assets, emphasizing stability and robustness over return maximization. Both problems naturally involve optimization formulations with smooth loss terms (such as tracking error or portfolio variance) and non-smooth penalties or constraints (such as sparsity and budget restrictions). The ADMM framework provides an efficient and flexible approach to handle these structures by decomposing them into subproblems that can be solved in closed form or through simple projections. We evaluate the proposed ADMM-based formulations using both synthetic experiments and S&P top 50 index. For index tracking, the ADMM algorithm consistently achieves lower out-of-sample tracking error (TE) compared to standard convex optimization methods while maintaining sparse portfolios. For risk-based portfolios, the proposed approach produces lower out-of-sample variance and improved stability across different market regimes. These results demonstrate that ADMM not only enhances computational efficiency but also improves the empirical performance of risk-based and index tracking portfolios, offering a scalable and interpretable framework for modern portfolio optimization.
Brief Bio:
Dr. Sumanjay Dutta is currently serving as a Visiting Faculty at the Madras School of Economics and works as an Independent Quantitative Research Consultant. He completed his Ph.D. from the Indian Institute of Science (IISc), Bangalore, in 2025. His work focuses on developing advanced methods for portfolio construction, market analysis, and risk management.
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