Stochastic Bounds for Reference Sets in Portfolio Analysis

50 Pages Posted: 31 May 2018 Last revised: 27 Mar 2020

See all articles by Stelios Arvanitis

Stelios Arvanitis

Athens University of Economics and Business

Thierry Post

Graduate School of Business of Nazarbayev University

Nikolas Topaloglou

Athens University of Economics and Business

Date Written: July 21, 2019

Abstract

A stochastic bound is a portfolio which stochastically dominates all alternatives in a reference portfolio set instead of a single alternative portfolio. An approximate bound is a portfolio which comes as close as possible to this ideal. To identify and analyze exact or approximate bounds, feasible approaches to numerical optimization and statistical inference are developed based on Linear Programming and subsampling. The use of reference sets and stochastic bounds is shown to improve investment performance in representative applications to enhanced benchmarking using equity industry rotation and equity index options combinations.

Keywords: Portfolio Analysis, Stochastic Dominance, Subsampling, Linear Programming, Enhanced Benchmarking

JEL Classification: C61, D81, G11

Suggested Citation

Arvanitis, Stelios and Post, Thierry and Topaloglou, Nikolas, Stochastic Bounds for Reference Sets in Portfolio Analysis (July 21, 2019). Available at SSRN: https://ssrn.com/abstract=3181869 or http://dx.doi.org/10.2139/ssrn.3181869

Stelios Arvanitis

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
GREECE

Thierry Post (Contact Author)

Graduate School of Business of Nazarbayev University ( email )

53 Kabanbay Batyra Avenue
Astana, 010000
Kazakhstan

Nikolas Topaloglou

Athens University of Economics and Business ( email )

76, Patision street
Athens, GR10434
Greece

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