A portfolio model based on CVaR for petroleum exploration investment decision-making

Based on Modern Portfolio Theory, introduced the conditional value at risk (CVaR) theories and methods to put forward a CVaR portfolio model for petroleum exploration investment decision-making. This model uses CVaR to measure the risk and uses linear programming to get the optimal investment proportion. Through real example, this paper analyzed the influence of expected return, confidence level and constraint conditions on portfolio. The results show that the CVaR portfolio model is better than the traditional Mean-Variance model. It not only can diversify investment risk, but also overcomes the shortage of variance in risk measurement, which can help decision-makers to capture the potential losses exceeded threshold. So the decision has been made more scientifically and reasonablely. The paper provides a new idea and method to establish a rational portfolio for petroleum exploration.