ESSAYS ON PORTFOLIO OPTIMIZATION AND MANAGEMENT USING BOOTSTRAPPING METHOD: THE CASE OF BANK INDONESIA

This thesis investigates and simulates various strategies available to Bank Indonesia in managing its reserve portfolio in the aftermath of the 1997 crisis. Various improvements to the Markowitza??s mean-variance model were introduced. The first essay uses bootstrapping method to create efficient frontiera??s sample acceptance region, directly reducing transaction cost through the less frequent needs for portfolio rebalancing. In the second essay, Roy (1952), Kataoka (1963), and Telser (1955) safety-first criteria will be used to create downside risk portfolios of Bank Indonesiaa??s foreign currency reserve. This thesis also combines various downside risk models with stochastic sample acceptance region. The final essay investigates the currently popular law of active management (Grinold, 1998). The effects of various parameters on the volatility of tracking errors are simulated. To deal with non-normality of tracking-error data, bootstrap bias corrected and accelerated (BCa) confidence interval will be utilized to test the volatility profile of each model.

Author dc:creator

• ENI VIMALADEWI

• Bank Indonesia, sample acceptance region, downside risks, law of active management, bootstrapping, mean-variance model