Higher-order Omega: A performance index with a decision-theoretic foundation

Hongwei Bi, Rachel Huang (), Larry Y. Tzeng and Wei Zhu

Journal of Banking & Finance, 2019, vol. 100, issue C, 43-57

Abstract: This paper proposes a new performance index referred to as the Nth-order Omega that includes the well-known Omega as a special case. The index is established by adopting an approach that is free of a utility functional form or/and distributional assumptions. A decision-theoretic foundation for our index is further established through introducing a new distribution ranking criterion. The index is monotonic with respect to Nth-degree stochastic dominance and offers a complete ordering on gambles. An empirical example of deriving the optimal hedge ratio is demonstrated to show the applicability of the index.

Keywords: Almost stochastic dominance; Acceptance dominance; Performance index; Riskiness index; Optimal hedge ratio (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:100:y:2019:i:c:p:43-57

DOI: 10.1016/j.jbankfin.2018.12.013

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