VALUE-AT-RISK (VAR) APPLICATION AT HYPOTHETICAL PORTFOLIOS IN JAKARTA ISLAMIC INDEX

Abstract

The paper is an exploratory study to apply the method of historical simulation based on the concept of Value at Risk on hypothetical portfolios on Jakarta Islamic Index (JII). Value at Risk is a tool to measure a portfolio’s exposure to market risk. We construct four portfolios based on the frequencies of the companies in Jakarta Islamic Index on the period of 1 January 2008 to 2 August 2010. The portfolio A has 12 companies, Portfolio B has 9 companies, portfolio C has 6 companies and portfolio D has 4 companies. We put the initial investment equivalent to USD 100 and use the rate of 1 USD=Rp 9500. The result of historical simulation applied in the four portfolios shows significant increasing risk on the year 2008 compared to 2009 and 2010. The bigger number of  the member in one portfolio also affects the VaR compared to smaller member. The level of confidence 99% also shows bigger loss compared to 95%. The historical simulation shows the simplest method to estimate the event of increasing risk in Jakarta Islamic Index during the Global Crisis 2008.