Minimal Quantile Functions Subject to Stochastic Dominance Constraints

Xiangyu Wang, Jianming Xia, Zuo Quan Xu and Zhou Yang

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Abstract: We consider a problem of finding an SSD (second-order stochastic dominance)-minimal quantile function subject to the mixture of FSD (first-order stochastic dominance) and SSD constraints. The SSD-minimal solution is explicitly worked out and has a close relation to the Skorokhod problem. This result is then applied to explicitly solve a risk minimizing problem in financial economics.

Date: 2020-08, Revised 2022-08
New Economics Papers: this item is included in nep-ore
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