•‘Bootstrapping’ – which simulates future investment returns by assuming that
the future will be similar to past.
•For
example, if we want to simulate the stock price of GE in one year, assumption
is made that each month’s percentage change in price is equally likely to be
percentage changes for the previous 60 months.
•This
approach allows to generate thousands of scenarios for the future value of your
investments easily.
•In
addition, bootstrapping can be easily adjusted to reflect a view that future
returns on investments will be less or more favourable than in the recent past.
•After
generating future scenarios for investment returns, use MS Excel Solver to work
out the asset allocation problem – how to allocate investments to attain the
level of expected return but with minimum risk
Example can be found at