Stochastic Dominance: Convexity and Some Efficiency Tests

Andrey M. Lizyayev
Additional contact information
Andrey M. Lizyayev: Erasmus University Rotterdam

No 09-112/2, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This paper points out the importance of Stochastic Dominance (SD) efficient sets being convex. We reviewclassic convexity and efficient set characterization results on SD efficiency of a given portfolio relative to adiversified set of assets and generalize them in the following aspects. First, we broaden the class ofindividual utilities in Rubinstein (1974) that lead to two-fund separation. Secondly, we propose a linearprogramming SSD test that is more efficient than that of Post (2003) and expand the SSD efficiency criteriadeveloped by Dybvig and Ross (1982) onto the Third Order Stochastic Dominance and further toDecreasing Absolute and Increasing Relative Risk Aversion Stochastic Dominance. The efficient sets forthose are finite unions of convex sets.

Keywords: Stochastic Dominance; Convexity; Risk Aversion; Efficiency (search for similar items in EconPapers)
JEL-codes: C63 G11 (search for similar items in EconPapers)
Date: 2009-12-09, Revised 2010-01-05
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://papers.tinbergen.nl/09112.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20090112

Access Statistics for this paper

More papers in Tinbergen Institute Discussion Papers from Tinbergen Institute Contact information at EDIRC.
Bibliographic data for series maintained by Tinbergen Office +31 (0)10-4088900 ().