Article ID: | iaor20108337 |
Volume: | 209 |
Issue: | 1 |
Start Page Number: | 83 |
End Page Number: | 93 |
Publication Date: | Feb 2011 |
Journal: | European Journal of Operational Research |
Authors: | Clark Ephraim, Jokung Octave, Kassimatis Konstantinos |
Keywords: | programming: integer, measurement |
This paper uses the concept of Marginal Conditional Stochastic Dominance and a generalization of the 50% Portfolio Rule to develop a tractable and parsimonious methodology for constructing a second degree Stochastic Dominance (SSD) efficient portfolio from a given, inefficient index. Because the SSD approach considers the entire probability distributions of asset returns, the resulting portfolios are efficient with respect to all risk-averse, utility-maximizing investors regardless of the form of their utility functions or the distributions of asset returns.