The Stochastic Dominance Theory and Its Application in Risk Models of Portfolio Investment
Dan Wang · Journal of Xiangtan University · 2014
In this paper,we give a simple comment on the existing risk measurement theories and methods,point out their advantages and disadvantages,put forward the stochastic dominance theory in the portfolio risk management of the incomplete information market.We provide a portfolio risk optimization model with a second- order stochastic dominance constraints. This model does not need to make any assumptions about the utility function of the investors and the distribution of the risk assets income,and it can ensure that the choices of the risk- averse investor can be randomly better than a reference value,so it can avoid the high risk investment. At last,we give an empirical research on this model.