Abstract: According to the prospect theory of Kahnem an and Tversky's(1979),this paper pats for ward an optimal port folio selection model to maximize the S-sharp utility function based on loss aversion.For dealing with non-smoothness we have smoothed the S-shar putility function in the vicinity of reference point, by employing cubic splines.Meanw hile,we proposear andom searchalgorithm to deal with the possible presence of several local optima due to the objective function is not quasi-concave.Finally an empirical study using the data from Chinese stock market is given in order to prove the reasonableness and effectiveness of this model.

Key words: prospec theory, loss aversion, po rtfolio selection, non-smoothness problem, localoptima