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Quadratic Investment Portfolio Based on Value-at-risk with Risk-Free Assets: For Stocks of the Mining and Energy Sector

Author

Listed:
  • Naomi Pandiangan

    (Master s Program in Mathematics, Universitas Padjadjaran, Bandung, Indonesia,)

  • Sukono Sukono

    (Department of Mathematics, Universitas Padjadjaran, Bandung 40132, Indonesia.)

  • Endang Soeryana Hasbullah

    (Department of Mathematics, Universitas Padjadjaran, Bandung 40132, Indonesia.)

Abstract

The mining and energy sector is still the driving force for economic development and community empowerment, especially around mining and energy activities. Therefore, increased investment in the mining and energy sectors needs to be increased and balanced with stricter safety and environmental policies. This paper aims to formulate a quadratic investment portfolio optimization model, and apply it to several stocks in the mining and energy sectors. In this paper, it is assumed that risk is measured using Value-at-Risk (VaR), so that the optimization modeling is carried out using the quadratic investment portfolio approach to the Mean-VaR model with risk-free assets. Furthermore, the model is used to determine the efficient portfolio surface based on several values of risk aversion levels. Based on the results of the analysis, it is found that an efficient portfolio surface has a minimum portfolio return value with an average of 0.766522 and a VaR risk of 0.038687. In addition, the results of the analysis can be concluded that the greater the level of risk aversion, the smaller the VaR value, which is followed by the smaller the portfolio average value.

Suggested Citation

  • Naomi Pandiangan & Sukono Sukono & Endang Soeryana Hasbullah, 2021. "Quadratic Investment Portfolio Based on Value-at-risk with Risk-Free Assets: For Stocks of the Mining and Energy Sector," International Journal of Energy Economics and Policy, Econjournals, vol. 11(4), pages 175-184.
    • Handle: RePEc:eco:journ2:2021-04-22
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    References listed on IDEAS

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    More about this item

    Keywords

    Mining and energy sector; risk free assets; investment; Value-at-Risk; portfolio optimization.;
    All these keywords.

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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