A second-order stochastic dominance portfolio efficiency measure

Title:

A second-order stochastic dominance portfolio efficiency measure

Creator:

Kopa, Miloš and Chovanec, Petr

Identifier:

https://cdk.lib.cas.cz/client/handle/uuid:a88d33c6-ddc8-4c92-810c-3bb7b58a869e
uuid:a88d33c6-ddc8-4c92-810c-3bb7b58a869e

Subject:

stochastic dominance, CVaR, and SSD portfolio efficiency measure

Type:

model:article and TEXT

Format:

bez média and svazek

Description:

In this paper, we introduce a new linear programming second-order stochastic dominance (SSD) portfolio efficiency test for portfolios with scenario approach for distribution of outcomes and a new SSD portfolio inefficiency measure. The test utilizes the relationship between CVaR and dual second-order stochastic dominance, and contrary to tests in Post \cite{Post} and Kuosmanen \cite{Kuosmanen}, our test detects a dominating portfolio which is SSD efficient. We derive also a necessary condition for SSD efficiency using convexity property of CVaR to speed up the computation. The efficiency measure represents a distance between the tested portfolio and its least risky dominating SSD efficient portfolio. We show that this measure is consistent with the second-order stochastic dominance relation. We find out that this measure is convex and we use this result to describe the set of SSD efficient portfolios. Finally, we illustrate our results on a numerical example.

Language:

English

Rights:

http://creativecommons.org/publicdomain/mark/1.0/
policy:public

Coverage:

[243]-258

Source:

Kybernetika | 2008 Volume:44 | Number:2

Harvested from:

CDK

Metadata only:

false