Portfolio optimization with stochastic dominance constraints

Darinka Dentcheva; Andrzej Ruszczyński

doi:10.1016/j.jbankfin.2005.04.024

Portfolio optimization with stochastic dominance constraints

Darinka Dentcheva
, Andrzej Ruszczyński

Rutgers - The State University of New Jersey, New Brunswick

Research output: Contribution to journal › Article › peer-review

178 Scopus citations

Abstract

We consider the problem of constructing a portfolio of finitely many assets whose return rates are described by a discrete joint distribution. We propose a new portfolio optimization model involving stochastic dominance constraints on the portfolio return rate. We develop optimality and duality theory for these models. We construct equivalent optimization models with utility functions. Numerical illustration is provided.

Original language	English
Pages (from-to)	433-451
Number of pages	19
Journal	Journal of Banking and Finance
Volume	30
Issue number	2
DOIs	https://doi.org/10.1016/j.jbankfin.2005.04.024
State	Published - Feb 2006

Keywords

Duality
Portfolio optimization
Risk
Stochastic dominance
Stochastic order
Utility function

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10.1016/j.jbankfin.2005.04.024

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title = "Portfolio optimization with stochastic dominance constraints",

abstract = "We consider the problem of constructing a portfolio of finitely many assets whose return rates are described by a discrete joint distribution. We propose a new portfolio optimization model involving stochastic dominance constraints on the portfolio return rate. We develop optimality and duality theory for these models. We construct equivalent optimization models with utility functions. Numerical illustration is provided.",

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AU - Ruszczyński, Andrzej

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AB - We consider the problem of constructing a portfolio of finitely many assets whose return rates are described by a discrete joint distribution. We propose a new portfolio optimization model involving stochastic dominance constraints on the portfolio return rate. We develop optimality and duality theory for these models. We construct equivalent optimization models with utility functions. Numerical illustration is provided.

KW - Duality

KW - Portfolio optimization

KW - Risk

KW - Stochastic dominance

KW - Stochastic order

KW - Utility function

UR - https://www.scopus.com/pages/publications/32944464353

UR - https://www.scopus.com/pages/publications/32944464353#tab=citedBy

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M3 - Article

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VL - 30

SP - 433

EP - 451

JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

IS - 2

ER -

Portfolio optimization with stochastic dominance constraints

Abstract

Keywords

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