IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2510.15288.html
   My bibliography  Save this paper

Portfolio Optimization of Indonesian Banking Stocks Using Robust Optimization

Author

Listed:
  • Visca Tri Winarty
  • Sena Safarina

Abstract

Since the COVID-19 pandemic, the number of investors in the Indonesia Stock Exchange has steadily increased, emphasizing the importance of portfolio optimization in balancing risk and return. The classical mean-variance optimization model, while widely applied, depends on historical return and risk estimates that are uncertain and may result in suboptimal portfolios. To address this limitation, robust optimization incorporates uncertainty sets to improve portfolio reliability under market fluctuations. This study constructs such sets using moving-window and bootstrapping methods and applies them to Indonesian banking stock data with varying risk-aversion parameters. The results show that robust optimization with the moving-window method, particularly with a smaller risk-aversion parameter, provides a better risk-return trade-off compared to the bootstrapping approach. These findings highlight the potential of the moving-window method to generate more effective portfolio strategies for risk-tolerant investors.

Suggested Citation

  • Visca Tri Winarty & Sena Safarina, 2025. "Portfolio Optimization of Indonesian Banking Stocks Using Robust Optimization," Papers 2510.15288, arXiv.org.
    • Handle: RePEc:arx:papers:2510.15288
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2510.15288
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. R.H. Tütüncü & M. Koenig, 2004. "Robust Asset Allocation," Annals of Operations Research, Springer, vol. 132(1), pages 157-187, November.
    2. Giorgio Costa & Roy Kwon, 2020. "A robust framework for risk parity portfolios," Journal of Asset Management, Palgrave Macmillan, vol. 21(5), pages 447-466, September.
    3. A. Ben-Tal & A. Nemirovski, 1998. "Robust Convex Optimization," Mathematics of Operations Research, INFORMS, vol. 23(4), pages 769-805, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Giorgio Costa & Roy H. Kwon, 2021. "Data-driven distributionally robust risk parity portfolio optimization," Papers 2110.06464, arXiv.org.
    2. Vaughn Gambeta & Roy Kwon, 2020. "Risk Return Trade-Off in Relaxed Risk Parity Portfolio Optimization," JRFM, MDPI, vol. 13(10), pages 1-28, October.
    3. Stein, Oliver, 2012. "How to solve a semi-infinite optimization problem," European Journal of Operational Research, Elsevier, vol. 223(2), pages 312-320.
    4. Maillet, Bertrand & Tokpavi, Sessi & Vaucher, Benoit, 2015. "Global minimum variance portfolio optimisation under some model risk: A robust regression-based approach," European Journal of Operational Research, Elsevier, vol. 244(1), pages 289-299.
    5. Hakan Kaya, 2017. "Managing ambiguity in asset allocation," Journal of Asset Management, Palgrave Macmillan, vol. 18(3), pages 163-187, May.
    6. Ashok K. Mishra & Mike G. Tsionas, 2020. "A Minimax Regret Approach to Decision Making Under Uncertainty," Journal of Agricultural Economics, Wiley Blackwell, vol. 71(3), pages 698-718, September.
    7. Kolm, Petter N. & Tütüncü, Reha & Fabozzi, Frank J., 2014. "60 Years of portfolio optimization: Practical challenges and current trends," European Journal of Operational Research, Elsevier, vol. 234(2), pages 356-371.
    8. Zapata Quimbayo, Carlos Andres & Carmona Espejo, Diego Felipe & Gamboa Hidalgo, Jhonatan, 2025. "Robust Bayesian portfolio optimization," International Review of Financial Analysis, Elsevier, vol. 103(C).
    9. Pulak Swain & Akshay Kumar Ojha, 2025. "Feasibility conditions of robust portfolio solutions with single and combined uncertainties," OPSEARCH, Springer;Operational Research Society of India, vol. 62(3), pages 1262-1287, September.
    10. Lotfi, Somayyeh & Zeniosn, Stravros A., 2016. "Equivalence of Robust VaR and CVaR Optimization," Working Papers 16-03, University of Pennsylvania, Wharton School, Weiss Center.
    11. Erindi Allaj, 2020. "The Black–Litterman model and views from a reverse optimization procedure: an out-of-sample performance evaluation," Computational Management Science, Springer, vol. 17(3), pages 465-492, October.
    12. David Wozabal, 2012. "A framework for optimization under ambiguity," Annals of Operations Research, Springer, vol. 193(1), pages 21-47, March.
    13. Gianfranco Guastaroba & Gautam Mitra & M Grazia Speranza, 2011. "Investigating the effectiveness of robust portfolio optimization techniques," Journal of Asset Management, Palgrave Macmillan, vol. 12(4), pages 260-280, September.
    14. Frank Fabozzi & Dashan Huang & Guofu Zhou, 2010. "Robust portfolios: contributions from operations research and finance," Annals of Operations Research, Springer, vol. 176(1), pages 191-220, April.
    15. Mian Li & Steven Gabriel & Yohan Shim & Shapour Azarm, 2011. "Interval Uncertainty-Based Robust Optimization for Convex and Non-Convex Quadratic Programs with Applications in Network Infrastructure Planning," Networks and Spatial Economics, Springer, vol. 11(1), pages 159-191, March.
    16. Sandra Cruz Caçador & Pedro Manuel Cortesão Godinho & Joana Maria Pina Cabral Matos Dias, 2022. "A minimax regret portfolio model based on the investor’s utility loss," Operational Research, Springer, vol. 22(1), pages 449-484, March.
    17. Somayeh Moazeni & Thomas Coleman & Yuying Li, 2013. "Regularized robust optimization: the optimal portfolio execution case," Computational Optimization and Applications, Springer, vol. 55(2), pages 341-377, June.
    18. Huang, Dashan & Zhu, Shushang & Fabozzi, Frank J. & Fukushima, Masao, 2010. "Portfolio selection under distributional uncertainty: A relative robust CVaR approach," European Journal of Operational Research, Elsevier, vol. 203(1), pages 185-194, May.
    19. Raphael Hauser & Vijay Krishnamurthy & Reha Tutuncu, 2013. "Relative Robust Portfolio Optimization," Papers 1305.0144, arXiv.org, revised May 2013.
    20. A. Georgantas, 2020. "Robust Optimization Approaches for Portfolio Selection: A Computational and Comparative Analysis," Papers 2010.13397, arXiv.org.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2510.15288. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.