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Orderings and Probability Functionals Consistent with Preferences

  • Sergio Ortobelli
  • Svetlozar Rachev
  • Haim Shalit
  • Frank Fabozzi

This paper unifies the classical theory of stochastic dominance and investor preferences with the recent literature on risk measures applied to the choice problem faced by investors. First, we summarize the main stochastic dominance rules used in the finance literature. Then we discuss the connection with the theory of integral stochastic orders and we introduce orderings consistent with investors' preferences. Thus, we classify them, distinguishing several categories of orderings associated with different classes of investors. Finally, we show how we can use risk measures and orderings consistent with some preferences to determine the investors' optimal choices.

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Article provided by Taylor & Francis Journals in its journal Applied Mathematical Finance.

Volume (Year): 16 (2009)
Issue (Month): 1 ()
Pages: 81-102

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Handle: RePEc:taf:apmtfi:v:16:y:2009:i:1:p:81-102
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  18. Svetlozar Rachev & Sergio Ortobelli & Stoyan Stoyanov & Frank J. Fabozzi & Almira Biglova, 2008. "Desirable Properties Of An Ideal Risk Measure In Portfolio Theory," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 19-54.
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