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Erschienen in:
Introduction to Financial Econometrics and Statistics Kapitel lesen Erstes Kapitel lesen

2015 | OriginalPaper | Buchkapitel

83. Risk-Averse Portfolio Optimization via Stochastic Dominance Constraints

verfasst von : Darinka Dentcheva, Andrzej Ruszczynski

Erschienen in: Handbook of Financial Econometrics and Statistics

Verlag: Springer New York

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Abstract

We consider the problem of constructing a portfolio of finitely many assets whose return rates are described by a discrete joint distribution. We present a new approach to portfolio selection based on stochastic dominance.
The portfolio return rate in the new model is required to stochastically dominate a random benchmark. We formulate optimality conditions and duality relations for these models and construct equivalent optimization models with utility functions. Two different formulations of the stochastic dominance constraint, primal and inverse, lead to two dual problems which involve von Neumann–Morgenstern utility functions for the primal formulation and rank-dependent (or dual) utility functions for the inverse formulation. We also discuss the relations of our approach to value at risk and conditional value at risk. Numerical illustration is provided.

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Vorheriges Kapitel A VG-NGARCH Model for Impacts of Extreme Events on Stock Returns
Nächstes Kapitel Implementation Problems and Solutions in Stochastic Volatility Models of the Heston Type
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Metadaten
Titel
Risk-Averse Portfolio Optimization via Stochastic Dominance Constraints
verfasst von
Darinka Dentcheva
Andrzej Ruszczynski
Copyright-Jahr
2015
Verlag
Springer New York
Buch
Handbook of Financial Econometrics and Statistics

Print ISBN: 978-1-4614-7749-5

Electronic ISBN: 978-1-4614-7750-1

Copyright-Jahr: 2015

DOI
https://doi.org/10.1007/978-1-4614-7750-1_83