IntroductionThe average variance optimization model and capital asset pricing model will be compared in the assignment because the models are important in investment. MVOM involves finding the best method to share the investment to achieve the highest return and lowest risks by calculating the risk variance and future rate of return. CAPM involves analyzing and calculating expected return and risk to find the best method with the highest profits and lowest risks. CAPM is a supplement for MVOM. The report will discuss the probability distribution assumption, inputs and outputs, advantages and disadvantages of two models, behavior of mean variance optimization model when market imposes constraints and limits of MVOM. Probability Distribution Assumption: The Probability Distribution The assumption on the return distributions of risky assets of the mean variance optimization model is a symmetrical bell-shaped distribution whose parabola opens to the right. And the CAPM model is normally distributed. The assumptions used to derive the mean variance optimization model are as follows: 1) Investors focus only on the means and variances of the portfolio's return over a given period. 2) Investors seek higher means and lower spreads. 3) Investors are against risk and risk can be represented by variance. 4) Financial markets operate without friction. 5) There is no taxation or transaction fees and the price and quantity of assets have no restrictions when trading. The assumptions of the CAPM model are: 1) Investors can obtain all information at the same time. 2) There is no taxation or transaction fees. 3) With a risk-free interest rate, investors can borrow and lend unlimited amounts. 4) Rational and risk averse. 5）Have consistent expectations. 6) All assets are perfectly divisible and liquid...... middle of paper ...... for the CAPM are: First, the model is simplicity and definition. The model simply divides all risk capital into three factors: the risk-free rate of return, the price of risk, and the unit of risk calculation. This can save investors a huge amount of work. Second, the practicability of CAPM can help investors evaluate and choose financial assets with absolute risk rather than total risk. The decision is easy for the model to make. However, the model also has some weaknesses: first, the assumption of the model is difficulty in implementation. Such as: the market is not complete, the lending rate is different, and the investor's anticipation is different. Second, beta represents price mobility in the past. But investors need the price mobility to come. And beta is difficult to calculate with past data. Third, the combination of risk-free assets and market investments does not exist..