MEAN-CVAR PORTFOLIO SELECTION MODEL WITH AMBIGUITY IN DISTRIBUTION AND ATTITUDE

Abstract

abstract. In this paper, we develop a-robust (maxmin) models, where the Conditional Value-at-Risk (CVaR) is to be optimized under ambiguity in dis-tribution, mean returns, and covariance matrix. Our models allow the investor to distinguish ambiguity and ambiguity attitude with different levels of ambi-guity aversion. For the case when there is a risk-free asset and short-selling is allowed, we obtain the analytic solution for the α-robust CVaR optimization model subject to a minimum mean return constraint. Moreover, we also derive a closed-form portfolio rule for the α-robust mean-CVaR optimization prob-lem in a market without the risk-less asset. The results obtained from solving the numerical example show that if an investor is more ambiguity-averse, his investment strategy will always be more conservative.