Experimental Design of Islamic Banking Investment Policies with Risk: A Sensitivity Analysis Study

Abstract

This paper is concerned with the use of a computer-based mathematical modeling approach in Islamic Banking Investment Policies with Risk. The computer based model has shown the greatest potential of its use as a planning tool in this field. The allocation process of funds in an investment administration of an Islamic bank has been modeled. The bank distributes a total available funds for investment among i different main sectors, j different sub-sectors and by k Islamic forms (or classes) of investment. The bank
management seeks to maximize the total net returns from the investment operations. In this paper which
is considered as Part II to the first one, the obtained optimal solution analyzed through different policies.
The aim of this paper is to investigate the different investment policies with risk constraint in depth. The
LP model is used as a tool for designing and testing investment policies. A sensitivity analysis study has
been conducted through a number of experiments which have been designed, tested and analyzed as well.
Overall conclusions of the applicability of mathematical modeling in addressing policy design and testing
in Islamic banking investment are made. The available computer software TORA optimization system
has been implemented to design and test the investment policies using the LP model.