Stochastic dominance theory for location-scale family

Wing Keung WONG

Research output: Contribution to journalArticlepeer-review

22 Citations (Scopus)

Abstract

Meyer (1987) extended the theory of mean-variance criterion to include the comparison among distributions that differ only by location and scale parameters and to include general utility functions with only convexity or concavity restrictions. In this paper, we make some comments on Meyer's paper and extend the results from Tobin (1958) that the indifference curve is convex upwards for risk averters, concave downwards for risk lovers, and horizontal for risk neutral investors to include the general conditions stated by Meyer (1987). We also provide an alternative proof for the theorem. Levy (1989) extended Meyer's results by introducing some inequality relationships between the stochastic-dominance and the mean-variance efficient sets. In this paper, we comment on Levy's findings and show that these relationships do not hold in certain situations. We further develop some properties among the first- and second-degree stochastic dominance efficient sets and the mean-variance efficient set.

Original languageEnglish
Article number82049
JournalJournal of Applied Mathematics and Decision Sciences
Volume2006
DOIs
Publication statusPublished - 2006

Scopus Subject Areas

  • Decision Sciences(all)
  • Statistics and Probability
  • Computational Mathematics
  • Applied Mathematics

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