Abstract: TEV (Tracking Error Volatility) Optimization which is widely used in active portfolio management has an inherent flaw.The assets of investors have greater risk,owing to the actions of managers.Jorion(2003)noted that C-TEV(Constant-TEV)Optimization can improve performance of the portfolio.The paper concentrates on TEV Optimization and C-TEV Optimization.It explores the conclusion of Jorion is not fully right and discusses efficiency,cost,role of benchmark and risk preference,and designs a more effective risk control mechanism.

Key words: tracking error, information ratio, overall risk, benchmark portfolio