The Empirical Analysis Based On The Mean-CVaR Portfolio Optimization Model

The Portfolio theory is a study of how to make an investment decision to allocateassets. The target of a portfolio is to obtain some benefits and spread risk at the sametime. Rational investors expect maximum utility. They want to make the return of theportfolio maximized in a tolerant risk level or to make the risk of the portfoliominimized in a given target of return. Risk and return is closely related. TheMean-Variance model which is usually called MV model for short is the basis of thePortfolio theory. Most models about investment portfolio are thus extended by the MVmodel. In the MV model, mean of return on assets is used to reflect the investmentprofit and variance to describe risk.but MV model is unable to determine the size ofrisk.The VaR and CVaR methods are both risk measurement methods which had beenrecognized and widely used in recent years. With the advent of these methods, a newmodel is built, which is called Mean-CVaR model that is better than MV model in termsof risk metrics. In the Mean-CVaR model, conditional value at risk is used to describetail risk instead of variance. By the method for solving linear programe, the optimalprotfolio weights will be calculated finally. In this paper, the Mean-CVaR model is usedin the domestic securities market. The empirical analysis shows that the Mean-CVaRmodel is suitable for the domestic securities market. And the model can effectivelydescribe and potential risk of portfolio diversification.The paper has a certain theoretical significance and practical value.Mean-CVaRmodel can help investors achieve the optimal asset allocation and also be used for themeasurement of investment risk.By selecting different confidence levels to control therisk, different portfolio efficient frontier can be competed.With historical simulationmethod used,the Mean-CVaR model is used to the stock market in China to couduct theempirical analysis of portfolio optimization.And after a period of observation of theeffect of model,the applicability of the model in China securities market is be verified.