Modeling Portfolio Based on Linear Programming for Bank Business Development Project Plan

Abstract

The bank’s business processes target business plans for the next year. Existing conditions, the business plan is based on the growth asset portfolio every year, so that the purchase of productive assets awaits issuers’ offers. This condition will cause a portfolio not to be measured and the inaccuracy of portfolio selection. Asset Liability Management (ALM) is the management of the structure of assets and liabilities to achieve profit. Banking books and trading books are bank portfolios to earn income. In selecting each portfolio, it contains liquidity risk, market risk and, credit risk. The level of profit is reflected in returns, while returns and risks are a trade-off so that calculations require mathematical and simulation models. Each bank needs an overview of the composition of productive assets, as short-term, medium-term and, long-term assets must be measured risk and target achievement. Linear programming method will allocate productive assets as the bank’s leading source of income, to achieve optimization of profit on the risks received. The problem with this research is that there are 830 variables as banking assets and 19 constraints as indicators of risk. In the seventh iteration of mathematical models, return 1,803 Trillyun from 11 banking book assets.