Measuring of Second-order Stochastic Dominance Portfolio Efficiency

0345195 - ÚTIA 2011 RIV CZ eng J - Journal Article
Kopa, Miloš
Measuring of Second-order Stochastic Dominance Portfolio Efficiency.
Kybernetika. Roč. 46, č. 3 (2010), s. 488-500. ISSN 0023-5954
R&D Projects: GA ČR GAP402/10/1610
Institutional research plan: CEZ:AV0Z10750506
Keywords : stochastic dominance * stability * SSD porfolio efficiency
Subject RIV: BB - Applied Statistics, Operational Research
Impact factor: 0.461, year: 2010
http://library.utia.cas.cz/separaty/2010/E/kopa-measuring of second-order stochastic dominance portfolio efficiency.pdf

In this paper, we deal with second-order stochastic dominance (SSD) portfolio efficiency with respect to all portfolios that can be created from a considered set of assets. Assuming scenario approach for distribution of returns several SSD portfolio efficiency tests were proposed. We introduce a $/delta$-SSD portfolio efficiency approach and we analyze the stability of SSD portfolio efficiency and $/delta$-SSD portfolio efficiency classification with respect to changes in scenarios of returns. We propose new SSD and $/delta$-SSD portfolio efficiency measures as measures of the stability. We derive a non-linear and mixed-integer non-linear programs for evaluating these measures. Contrary to all existing SSD portfolio inefficiency measures, these new measures allow us to compare any two $/delta$-SSD efficient or SSD efficient portfolios. Finally, using historical US stock market data, we compute $/delta$-SSD and SSD portfolio efficiency measures of several SSD efficient portfolios.
Permanent Link: http://hdl.handle.net/11104/0186520