cost

问题如下：

Winthrop asks Tong about the techniques wealth managers and fund companies use to create index-tracking equity portfolios that minimize tracking error and costs. In response, Tong outlines two frequently used methods:

Method 1 One process requires that all index constituents are available for trading and liquid, but significant brokerage commissions can occur when the index is large.

Method 1’s portfolio construction process is most likely:

选项：

A.

optimization

B.

full replication

C.

stratified sampling

解释：

Full replication occurs when a manager holds all securities represented by the index in weightings that closely match the actual index weightings. Thus it requires that all index constituents are liquid and available for trading, and the asset size of the mandate must also be sufficient.

Significant brokerage commissions can occur, however, when the index is large.