The Research Of Risk Management And Optimization Model Of The Portfolio In China's Stock Market

In 1997, a serious financial crisis broke out in Asia countries, and from then on, the turbulence of the international financial industry pricked up evidently. What's more, the famous company in America—LTMC, which is composed of so many elites working on Wall Street, persons who used to work as government officials, and some Nobelists in economical field, was also badly impacted by the international financial turbulence in 1998. Then all the people began to wake up to the ponderance and fall to investigate the better ways to measure and manage the financial risks. The main topic of this article is "The Research of Risk Management and Optimization of Portfolio in Chinese Stock Market". Firstly, we explain the reason why we chose this thesis and the background of it. Secondly, we discuss some very important theory about risk measurement and management, such as Mean-Variance (MV)Model, Mean-Value-at-risk(VaR)model and Mean -Conditional Value-at-risk(CVaR) model. The emphases of this article is Mean-CVaR Model: we adopted an optimizing arithmetic method advanced by R.T. Rockafellar and S. Uryasev. Then we are able to construct an optimizing model which made use of conditional value-at-risk to measure the financial risks, instead of variance or simple value-at-risk. Empirically, we constitute a portfolio of 20 significant stocks in Chinese stock market. And by use of the famous calculating software-Matlab, we optimize the portfolio, and got the efficient frontier. Besides, we can also determine the share of the every piece of stock. Finally, we give out the comparing analysis for the frontier we have got, breadthwise and lengthways: frontiers with different dealing costs and confidence levels; frontiers based on different risk measurement. Then we can conclude that the optimizing model based on CVaR is superior and more suitable than the model based on other risk measurement.