Probability Metrics Applied to Problems in Portfolio Theory

Stoyanov, Stoyan V.; Rachev, Svetlozar; Fabozzi, Frank J.

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Probability Metrics Applied to Problems in Portfolio Theory

Journal of Statistical Theory and Practice, Vol. 2, No. 2, pp. 253-277, 2008

40 Pages Posted: 23 Dec 2010

See all articles by Stoyan V. Stoyanov

Frank J. Fabozzi

Johns Hopkins University

Date Written: December 5, 2007

Abstract

In the paper, we consider the application of the theory of probability metrics in several areas in the eld of nance. First, we argue that specially structured probability metrics can be used to quantify stochastic dominance relations. Second, the methods of the theory of probability metrics can be used to arrive at a general axiomatic treatment of dispersion measures and probability metrics can be used to describe continuity of risk measures. Finally, the methods of probability metrics theory are applied to the benchmark-tracking problem significantly extending the problem setting.

Keywords: Probability Metrics, Stochastic Dominance, Dispersion Measure, Deviation Measure, Risk Measure, Benchmark-Tracking

JEL Classification: C61, D81, G11

Suggested Citation: Suggested Citation

Stoyanov, Stoyan Veselinov and Rachev, Svetlozar and Fabozzi, Frank J., Probability Metrics Applied to Problems in Portfolio Theory (December 5, 2007). Journal of Statistical Theory and Practice, Vol. 2, No. 2, pp. 253-277, 2008, Available at SSRN: https://ssrn.com/abstract=1729787