On the relative efficiency of nth order and DARA stochastic dominance rules
Antonella Basso and
Applied Mathematical Finance, 1997, vol. 4, issue 4, 207-222
It is known that third order stochastic dominance implies DARA dominance while no implications exist between higher orders and DARA dominance. A recent contribution points out that, with regard to the problem of determining lower and upper bounds for the price of a financial option, the DARA rule turns out to improve the stochastic dominance criteria of any order. In this paper the relative efficiency of the ordinary stochastic dominance and DARA criteria for alternatives with discrete distributions are compared, in order to see if the better performance of DARA criterion is also suitable for other practical applications. Moreover, the operational use of the stochastic dominance techniques for financial choices is deepened.
Keywords: Stochastic Dominance; Decreasing Absolute Risk Aversion; Financial Efficient Sets; Dynamic Programming, (search for similar items in EconPapers)
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