The Comparison And Empirical Research On Mean -CVaR And R-ratio Model In Risk Measurement

The three pillars of modern finance theory is the time value of money, asset pricing, risk management. The emphasis on quantitative analysis in modern risk management increasing. a lot of mathematics, statistics, systems engineering, or physics theories and methods have been applied to the study of risk management, and from the perspective of quantitative analysising , the core of risk management is the quantitative analysis and assessment to the risk, that is the risk measures.After VaR (Value-at-Risk or VaR) risk measure appeared in 1994, it have been widely used in the financial and economic fields. But the statistical data show that return distribution are not normal. Under this condition, VaR is not a coherent measure. So researchers put forward many other risk measures to replace VaR, such as Conditional Value-at-Risk (CVaR) and Rachev-ratio(R-ratio). CVaR is a conditional expected value of the worst losses, while R-ratio is to propose an algorithm for solving risk measuring of porfolio which is intended to construct a portfolio with shorter downside tail and longer upside tail.This article focuses on how to build a portfolio which has a downside tail as short as possible and upside tail as long as possible, that is mean a portfolio has losses as little as possible and profits as much as possible. While the mean-CVaR model will be discussed in this article. At last, this article will compare the two models, get the type and characteristics of these portfolios.