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Relative deviation metrics and the problem of strategy replication

Journal of Banking & Finance 2008 32(2), 199-206
In the paper, we generalize the classical benchmark tracking problem by introducing the class of relative deviation metrics. We introduce an axiomatic description of the benchmark tracking problem and a classification inspired by the theory of probability metrics. Two examples of such metrics are provided and their in-sample behaviour is compared to the classical tracking error in a numerical example.