Portfolio Optimization With Stochastic Dominance Constraints
AbstractWe consider the problem of constructing a portfolio of finitely many assets whose returns are described by a discrete joint distribution. We propose a new portfolio optimization model involving stochastic dominance constraints on the portfolio return. We develop optimality and duality theory for these models. We construct equivalent optimization models with utility functions. Numerical illustration is provided.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0402016.
Date of creation: 19 Feb 2004
Date of revision: 02 Mar 2006
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portfolio optimization; stochastic dominance; risk; utility functions; duality;
Other versions of this item:
- Dentcheva, Darinka & Ruszczynski, Andrzej, 2006. "Portfolio optimization with stochastic dominance constraints," Journal of Banking & Finance, Elsevier, vol. 30(2), pages 433-451, February.
- G - Financial Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-03-14 (All new papers)
- NEP-CFN-2004-03-14 (Corporate Finance)
- NEP-CMP-2004-02-23 (Computational Economics)
- NEP-FIN-2004-02-23 (Finance)
- NEP-RMG-2004-03-14 (Risk Management)
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