EconPapers    
Economics at your fingertips  
 

On exact and approximate stochastic dominance strategies for portfolio selection

Renato Bruni, Francesco Cesarone, Andrea Scozzari and Fabio Tardella

European Journal of Operational Research, 2017, vol. 259, issue 1, 322-329

Abstract: One recent and promising strategy for Enhanced Indexation is the selection of portfolios that stochastically dominate the benchmark. We propose here a new type of approximate stochastic dominance rule which implies other existing approximate stochastic dominance rules. We then use it to find the portfolio that approximately stochastically dominates a given benchmark with the best possible approximation. Our model is initially formulated as a Linear Program with exponentially many constraints, and then reformulated in a more compact manner so that it can be very efficiently solved in practice. This reformulation also reveals an interesting financial interpretation. We compare our approach with several exact and approximate stochastic dominance models for portfolio selection. An extensive empirical analysis on real and publicly available datasets shows very good out-of-sample performances of our model.

Keywords: Applied probability; Stochastic dominance; Portfolio optimization; Expected shortfall; Index tracking (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221716308190
Full text for ScienceDirect subscribers only

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:eee:ejores:v:259:y:2017:i:1:p:322-329

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Series data maintained by Dana Niculescu ().

 
Page updated 2017-09-29
Handle: RePEc:eee:ejores:v:259:y:2017:i:1:p:322-329