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Frontiers of Stochastically Nondominated Portfolios

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  • Andrzej Ruszczynski
  • Robert J. Vanderbei

Abstract

We consider the problem of constructing a portfolio of finitely many assets whose returns are described by a discrete joint distribution.We propose mean-risk models that are solvable by linear programming and generate portfolios whose returns are nondominated in the sense of second-order stochastic dominance. Next, we develop a specialized parametric method for recovering the entire mean-risk efficient frontiers of these models and we illustrate its operation on a large data set involving thousands of assets and realizations. Copyright The Econometric Society 2003.

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Bibliographic Info

Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 71 (2003)
Issue (Month): 4 (07)
Pages: 1287-1297

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Handle: RePEc:ecm:emetrp:v:71:y:2003:i:4:p:1287-1297

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Cited by:
  1. Gilbert W. Bassett Jr & Roger Koenker & Gregory Kordas, 2004. "Pessimistic portfolio allocation and Choquet expected utility," CeMMAP working papers CWP09/04, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  2. Li, Xiaoming, 2008. "Demand evolution in stochastic inventory systems: Riskiness increase," International Journal of Production Economics, Elsevier, vol. 116(2), pages 182-189, December.
  3. Rustam Ibragimov, 2004. "Shifting paradigms: on the robustness of economic models to heavy-tailedness assumptions," Econometric Society 2004 Latin American Meetings 105, Econometric Society.
  4. Manganelli, Simone, 2007. "Asset allocation by penalized least squares," Working Paper Series 0723, European Central Bank.
  5. Haim Shalit & Shlomo Yitzhaki, 2010. "How does beta explain stochastic dominance efficiency?," Review of Quantitative Finance and Accounting, Springer, vol. 35(4), pages 431-444, November.
  6. Dentcheva, Darinka & Ruszczynski, Andrzej, 2006. "Portfolio optimization with stochastic dominance constraints," Journal of Banking & Finance, Elsevier, vol. 30(2), pages 433-451, February.
  7. Xue, Jing-Hao & Titterington, D. Michael, 2011. "The p-folded cumulative distribution function and the mean absolute deviation from the p-quantile," Statistics & Probability Letters, Elsevier, vol. 81(8), pages 1179-1182, August.
  8. Lizyayev, Andrey & RuszczyƄski, Andrzej, 2012. "Tractable Almost Stochastic Dominance," European Journal of Operational Research, Elsevier, vol. 218(2), pages 448-455.

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