Journal ArticleDOI
The Efficiency Analysis of Choices Involving Risk
Giora Hanoch,Haim Levy +1 more
TLDR
In this paper, an analysis of the first step of the decision-making process of an individual decision maker among alternative risky ventures is presented, in terms of a single dimension such as money, both for the utility functions and for the probability distributions.Abstract:
Publisher Summary The choice of an individual decision maker among alternative risky ventures may be regarded as a two-step procedure. The decision maker chooses an efficient set among all available portfolios, independently of his tastes or preferences. Then, the decision maker applies individual preferences to this set to choose the desired portfolio. The subject of this chapter is the analysis of the first step. It deals with optimal selection rules that minimize the efficient set by discarding any portfolio that is inefficient in the sense that it is inferior to a member of the efficient set, from point of view of each and every individual, when all individuals' utility functions are assumed to be of a given general class of admissible functions. The analysis presented in the chapter is carried out in terms of a single dimension such as money, both for the utility functions and for the probability distributions. However, the results may easily be extended, with minor changes in the theorems and the proofs, to the multivariate case. The chapter explains a necessary and sufficient condition for efficiency, when no further restrictions are imposed on the utility functions. It presents proofs of the optimal efficiency criterion in the presence of general risk aversion, that is, for concave utility functions.read more
Citations
More filters
Journal ArticleDOI
Testing for second order stochastic dominance
TL;DR: In this paper, a test based on empirical distribution function has been devised for testing second order stochastic dominance of distribution functions, which is useful for comparison of random ehonomic prospects for risk averters.
Journal ArticleDOI
Stochastic dominance for decreasing absolute risk aversion
TL;DR: The mean-variance (MV) approach of Markowitz as mentioned in this paper, which has dominated portfolio theory in the past, continues to enjoy great popularity among portfolio theorists, and is consistent with expected utility theory for nonnormally distributed asset returns.
Journal ArticleDOI
Stochastic Dominance and Omega Ratio: Measures to Examine Market Efficiency, Arbitrage Opportunity, and Anomaly
TL;DR: Wang et al. as discussed by the authors studied the relationship between stochastic dominance and the Omega ratio and concluded that the Hong Kong real estate market is not efficient and there are expected arbitrage opportunities and anomalies.
Journal ArticleDOI
Efficiency Analysis and Option Portfolio Selection
TL;DR: In this article, the power of various investment selection criteria to identify efficient portfolios from investment strategies involving call options and treasury bills, stocks, and covered option writing is explored. But the importance of options to investor utility maximization is illustrated.
Journal ArticleDOI
Preferences of risk-averse and risk-seeking investors for oil spot and futures before, during and after the Global Financial Crisis
TL;DR: The authors examined risk-averse and risk-seeking investor preferences for oil spot and futures prices by using the mean-variance (MV) criterion, the CAPM statistics, and stochastic dominance (SD) approach.
References
More filters
Journal ArticleDOI
Capital asset prices: a theory of market equilibrium under conditions of risk*
TL;DR: In this paper, the authors present a body of positive microeconomic theory dealing with conditions of risk, which can be used to predict the behavior of capital marcets under certain conditions.
Journal ArticleDOI
The Utility Analysis of Choices Involving Risk
TL;DR: In this paper, the authors suggest that an important class of reactions of individuals to risk can be rationalized by a rather simple extension of orthodox utility analysis, i.e., individuals frequently must, or can, choose among alternatives that differ, among other things, in the degree of risk to which the individual will be subject.
Journal ArticleDOI
The Existence of Probability Measures with Given Marginals
TL;DR: In this article, the existence of probability distributions with given marginals is studied under typically weaker assumptions, than those which are required by the use of Theorem 1, and necessary and sufficient conditions for a sequence of probability measures to be the sequence of distributions of a martingale, an upper semi-martingale or of partial sums of independent random variables.