Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103606
Authors: 
Li, Jing
Xu, Mingxin
Year of Publication: 
2013
Citation: 
[Journal:] Risks [ISSN:] 2227-9091 [Publisher:] MDPI [Place:] Basel [Volume:] 1 [Year:] 2013 [Issue:] 3 [Pages:] 119-147
Abstract: 
Value-at-risk (VaR) and conditional value-at-risk (CVaR) are popular risk measures from academic, industrial and regulatory perspectives. The problem of minimizing CVaR is theoretically known to be of a Neyman-Pearson type binary solution. We add a constraint on expected return to investigate the mean-CVaR portfolio selection problem in a dynamic setting: the investor is faced with a Markowitz type of risk reward problem at the final horizon, where variance as a measure of risk is replaced by CVaR. Based on the complete market assumption, we give an analytical solution in general. The novelty of our solution is that it is no longer the Neyman-Pearson type, in which the final optimal portfolio takes only two values. Instead, in the case in which the portfolio value is required to be bounded from above, the optimal solution takes three values; while in the case in which there is no upper bound, the optimal investment portfolio does not exist, though a three-level portfolio still provides a sub-optimal solution.
Subjects: 
conditional value-at-risk
mean-CVaR portfolio optimization
risk minimization
Neyman&#x2013
Pearson problem
JEL: 
G11 , G32
C61
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/3.0/
Document Type: 
Article
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