A Characterization of the SSD-Efficient Frontier of Portfolio Weights with an Application to SSD-Spanning

26 Pages Posted: 22 Nov 2015

See all articles by Iñaki Rodríguez-Longarela

Iñaki Rodríguez-Longarela

Stockholm University - Stockholm Business School; UiT-The Arctic University of Norway - School of Business and Economics

Date Written: September 23, 2014

Abstract

In this paper it is shown how the set of all portfolios which are second-order stochastic dominance efficient can be characterized by using a series of mixed-integer linear constrains. Our derivation employs a combination of the first-order conditions of the utility maximization problem together with a judicious use of binary variables. Our main result is illustrated by presenting a theoretical and empirical application, which tackles in a general way spanning and intersection in the context of SSD-efficiency.

Keywords: stochastic dominance, mixed-integer linear programming, portfolio theory, spanning, intersection

JEL Classification: C61, G10, G11

Suggested Citation

Rodríguez Longarela, Iñaki, A Characterization of the SSD-Efficient Frontier of Portfolio Weights with an Application to SSD-Spanning (September 23, 2014). Available at SSRN: https://ssrn.com/abstract=2693623 or http://dx.doi.org/10.2139/ssrn.2693623

Iñaki Rodríguez Longarela (Contact Author)

Stockholm University - Stockholm Business School ( email )

Stockholm
Sweden

UiT-The Arctic University of Norway - School of Business and Economics ( email )

Tromsø, 9037
Norway

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