A note on second-order stochastic dominance for linear combinations of dependent Bernoulli random variables

Martín Egozcue and Luis Fuentes García

Communications in Statistics - Theory and Methods, 2023, vol. 52, issue 10, 3354-3360

Abstract: In this note, we establish necessary and sufficient conditions for second-order stochastic dominance of linear combinations of two Bernoulli random variables. We relax the assumptions of exchangeability or independence between these variables. We apply our results to assess the liquidity risk in the financial sector.

Date: 2023
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DOI: 10.1080/03610926.2021.1971248

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