On the mean-downside risk model

This paper analyses the problem of portfolio selection which minimizes the downside risk, when tails of financial assets approximately obey Pareto tail distribution. We name this as mean-downside risk model. Given a fixed return rate of the portfolio, this paper works out the optimal weight of each asset, minimizing the portfolio downside risk. Similar to Markowitz portfolio theory, portfolio expected return rate and minimum downside risk form a curve. For the existence and uniqueness of the optimal solution, this paper offers a theoretical proof, which is confirmed empirically.