We develop and implement linear formulations of general Nth order stochastic dominance criteria for discrete probability distributions. Our approach is based on a piece-wise polynomial representation of utility and its derivatives and can be implemented by solving a relatively small system of...

Existing approaches to testing for the efficiency of a given portfolio make strong parametric assumptions about investor preferences and return distributions. Stochastic dominance-based procedures promise a useful nonparametric alternative. However, these procedures have been limited to...

In order to analyze the performance of mean-risk efficient portfolios, several methods of portfolio comparison have been developed. In this paper we analyze the second-order stochastic dominance efficiency of portfolios on the mean-risk efficient frontier assuming that the risk is represented by...

Solutions of portfolio optimization problems are often influenced by a model misspecification or by errors due to approximation, estimation and incomplete information. The obtained results, recommendations for the risk and portfolio manager, should be then carefully analyzed. We shall deal with...

This paper deals with utility functions and their application in stochastic programming. In section 1, classification of utility functions is based on switching between gambles due to changes in wealth with a special focus on zero-switch and one-switch utility functions. All gambles are...

In this article, the authors deal with the efficiency of world stock indices. Basically, they compare three approaches: mean-risk, data envelopment analysis (DEA), and stochastic dominance (SD) efficiency. In the DEA methodology, efficiency is defined as a weighted sum of outputs compared to a...

There is a host of papers dealing with risk premiums for multidimensional or multi-attribute problems. For definition of multivariate risk premium and multivariate risk aversion we refer to [3], [4] or [8]. This paper develops characterizations of multiperiod risk premium. In general, risk...

We develop empirical tests for stochastic dominance efficiency of a given investment portfolio relative to all possible portfolios formed from a given set of assets. Our tests use multivariate statistics, which result in superior statistical power properties compared to existing stochastic...

This study establishes necessary conditions for Almost Stochastic Dominance criteria of various orders. These conditions take the form of restrictions on algebraic combinations of moments of the probability distributions in question. The relevant set of conditions depends on the relevant order...

We examine the risky choices of contestants in the popular TV game show “Deal or No Deal” and related classroom experiments. Contrary to the traditional view of expected utility theory, the choices can be explained in large part by previous outcomes experienced during the game. Risk aversion...