Abstract: The capital market has a key feature of uncertainty.To measure the risks induced by uncertainties,we proposed a new function based on absolute deviation function.Considering a frictional market,the mean-absolute deviation(MAD) model is constructed.The special structure of the model is utilized to transform a nonsmooth program into a linear one,which can be solved by simplex method.The numerical analysis compares the efficient frontiers of portfolio selection under various risk measures,and shows the validity of the method.

Key words: Portfolio selection, MAD model,measure of risk, optimization