First Stochastic Dominance and Risk Measurement

Cuizhen Niu, Wing-Keung Wong and Lixing Zhu

MPRA Paper from University Library of Munich, Germany

Abstract: Farinelli and Tibiletti (2008) propose a general risk-reward performance measurement ratio. Due to its simplicity and generality, the F-T ratios have gained much attentions. F-T ratios are ratios of average gains to average losses with respect to a target, each raised by some power index. Omega ratio and Upside Potential ratio are both special cases of F-T ratios. In this paper, we establish the consistency of F-T ratios with respect to first-order stochastic dominance. It is shown that second-order stochastic dominance is not consistent to the F-T ratios. This point is illustrated by a simple example.

Keywords: Stochastic Dominance; Upside Potential Ratio; Farinelli and Tibiletti ratio. (search for similar items in EconPapers)
JEL-codes: C00 D81 G10 (search for similar items in EconPapers)
Date: 2016-11-11
New Economics Papers: this item is included in nep-ore, nep-rmg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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