A Characterization of the SSD-Efficient Frontier of Portfolio Weights by Means of a Set of Mixed-Integer Linear Constraints

In this paper, the set of all second‐order stochastic dominance (SSD)‐efficient portfolios is characterized by using a series of mixed‐integer linear constraints. Our derivation employs a combination of the first‐order conditions of the utility maximization problem together with a judicious use of binary variables. This result opens the door to the formulation of optimizations whose objective function is free to select a particular portfolio out of the entire SSD‐efficient set. This paper was accepted by Jerome Detemple, finance.