Fraction-Degree Reference Dependent Stochastic Dominance

Revisiting Almost Second-Degree Stochastic Dominance

Third-Degree Stochastic Dominance and Inequality Measurement∗

This paper is an investigation of the third-degree stochastic dominance order (TSD) which has been introduced in the context of risk analysis and is now receiving an increased attention in the area of inequality measurement. After observing that this partial order fails to satisfy the von Neumann-Morgenstern property in the space of random variables, we introduce strong and local third-degree s...

A New Stochastic Dominance Degree Based on Almost Stochastic Dominance and Its Application in Decision Making

Traditional stochastic dominance rules are so strict and qualitative conditions that generally a stochastic dominance relation between two alternatives does not exist. To solve the problem, we firstly supplement the definitions of almost stochastic dominance (ASD). Then, we propose a new definition of stochastic dominance degree (SDD) that is based on the idea of ASD. The new definition takes b...

Portfolio Choice Based on Third-Degree Stochastic Dominance

We develop an optimization method for constructing investment portfolios that dominate a given benchmark portfolio in terms of third-degree stochastic dominance. Our approach relies on the properties of the semivariance function, a refinement of an existing ‘super-convex’ dominance condition and quadratic constrained programming. We apply our method to historical stock market data using an indu...

Stochastic Dominance

The concept of Stochastic Dominance (SD) appeared in Economics in the context of the study of income distribution, where it provided various criteria for ranking income distributions according to classes of social welfare functions. Although stochastic dominance is still much in use for studies of income distribution and of poverty, more recently it has also found uses in financial economics, w...