Sharpe ratio with CVaR for denominator and different investor utility functions

External question — Quantitative Finance Stack Exchange Author: Gcube Original post: https://quant.stackexchange.com/questions/45281 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. I would like to model different type of investors, hence I need to find some kind of utility functions to optimize. Apart from very abstract exponential utility function, I couldn't find any proper one. Frankly speaking, I would like to find some kind of more realistic criteria rather than type of abstract utility function. For example, for risk-neutral investor I have two questions: 1)Is it possible to use Sharpe ratio? (Can it be named as a criterion for risk-neutral?) 2)Can I use CVaR/VaR in denominator of SR (instead of StdDev)? If no, why not? I think, this will better account for fat tails. If there are papers on this topic (utility functions for different investing styles), I would really appreciate it! Thank you in advance!

External answer — Quantitative Finance Stack Exchange Author: David Nguyen Original post: https://quant.stackexchange.com/a/45286 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. For the first question: Let me ask you a question. Do the risk-neutral investor have a feeling of risk? For the second question: Sharpe Ratio tries to capture the excess return over the risk free rate. But you need to adjust it with the risk associated with your portfolio. So it depends on the type of risk measure you employ.

External answer — Quantitative Finance Stack Exchange Author: user24980 Original post: https://quant.stackexchange.com/a/54182 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. SR and VaR are very different things. The Sharpe ratio gives an idea of the performance of a given investment strategy, but it is nothing without looking at the corresponding drawdown. VaR just gives limited information based on the volatility of a portfolio within a certain confidence interval.