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What is Stochastic Dominance

Chapter 2
Recent Applications of Financial Risk Modelling and Portfolio Management
A methodology that provides the criteria for finding efficient alternatives consistent with the expected utility theory.
Published in Chapter:
Evaluating the Efficiency of Portfolio-Hedging Strategies by Incorporating Third Degree Stochastic Dominance Criteria and Data Envelopment Analysis
Margareta Gardijan Kedžo (Faculty of Economics and Business, University of Zagreb, Croatia)
Copyright: © 2021 |Pages: 25
DOI: 10.4018/978-1-7998-5083-0.ch002
Abstract
The chapter investigates chosen hedging strategies with options as useful risk hedging instruments. Assuming that average investor prefers greater return, is risk-averse, and prefers greater positive skewness, the performance of different hedged and unhedged portfolios is evaluated using stochastic dominance (SD) criteria and data envelopment analysis (DEA). The SD is examined up to the third degree (TSD) using Davidson-Duclos (DD) test. In the DEA, a super efficiency BCC model is used. It is investigated how these two methodologies can be combined and how the TSD criteria can be integrated into DEA in order to simplify the analysis of determining efficient hedging strategies with options.
Full Text Chapter Download: US $37.50 Add to Cart
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Chapter 3
Investigation of the Calendar Effect: Second-Order Stochastic Dominance Approach
A non-parametric approach that uses cumulative distribution functions to compare and rank return datasets disregarding their realization time.
Published in Chapter: Investigation of the Calendar Effect: Second-Order Stochastic Dominance Approach; From: Recent Applications of Financial Risk Modelling and Portfolio Management
Full Text Chapter Download: US $37.50 Add to Cart
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