CVaR in Portfolio Optimization: An Essay on the French Market

Abstract

There has been a growing interest in CVaR as a financial risk measure in optimal allocation fields. This interest is based many key advantages of CVaR over the most used measures of risk: the Value-at-Risk and the variance. In this paper we develop an asset allocation model that allocates assets by minimizing CVaR subject to a desired expected return and we compare the performance of the resulting optimal portfolios with those resulting from the optimization of mean-variance model. The empirical study uses stocks from the SBF250 index. The purpose of the paper is to highlight the influence of the non-normal characteristics of the return distribution on the optimal asset allocation and test the superiority of the mean- CVaR approach over the mean-variance approach.