Farinelli and Tibiletti ratio and stochastic dominance

Xu Guo (), Cuizhen Niu () and Wing-Keung Wong
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Xu Guo: Beijing Normal University
Cuizhen Niu: MSD R&D (China) Co., Ltd.

Risk Management, 2019, vol. 21, issue 3, No 4, 213 pages

Abstract: Abstract Farinelli and Tibiletti (F–T) ratio, a general risk-reward performance measurement ratio, is popular due to its simplicity and yet generality that both Omega ratio and upside potential ratio are its special cases. The F–T ratios are ratios of average gains to average losses with respect to a target, each raised by a power index, p and q. In this paper, we establish the consistency of F–T ratios with any nonnegative values p and q with respect to first-order stochastic dominance. Second-order stochastic dominance does not lead to F–T ratios with any nonnegative values p and q, but can lead to F–T dominance with any $$p

Keywords: First-order stochastic dominance; High-order stochastic dominance; Upside potential ratio; Farinelli and Tibiletti ratio; Risk measures (search for similar items in EconPapers)
JEL-codes: C0 D81 G10 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (11)

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Working Paper: Farinelli and Tibiletti ratio and Stochastic Dominance (2017)
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DOI: 10.1057/s41283-019-00050-2

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