Stochastic dominance theory for location-scale family

Wong, Wing Keung

doi:10.1155/jamds/2006/82049

Cited by 48 publications

(31 citation statements)

References 42 publications

(42 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Wong (2006) extends the theoretical results of both Meyer (1987) and Tobin (1958) by showing that the indifference curve is convex upwards for risk averters, concave downwards for risk lovers, and horizontal for risk neutral investors, to include the general conditions stated by Meyer (1987). In addition, Wong (2006) develops several properties among the first-and second-order SD efficient sets and the mean-variance efficient set. Wong and Ma (2008) extend the work on the location-scale (LS) family with general n random seed sources in the multivariate setting.…”

Section: Indifference Curvessupporting

confidence: 70%

Decision Sciences, Economics, Finance, Business, Computing, and Big Data: Connections

2018

Self Cite

View full text Add to dashboard Cite

This paper provides a review of some connecting literature in Decision Sciences, Economics, Finance, Business, Computing, and Big Data. We then discuss some research that is related to the six cognate disciplines. Academics could develop theoretical models and subsequent econometric and statistical models to estimate the parameters in the associated models. Moreover, they could then conduct simulations to examine whether the estimators or statistics in the new theories on estimation and hypothesis have small size and high power. Thereafter, academics and practitioners could then apply their theories to analyze interesting problems and issues in the six disciplines and other cognate areas. KeywordsDecision sciences, economics, finance, business, computing, and big data, theoretical models, econometric and statistical models, applications. JEL Classification AbstractThis paper provides a review of some connecting literature in Decision Sciences, Economics, Finance, Business, Computing, and Big Data. We then discuss some research that is related to the six cognate disciplines. Academics could develop theoretical models and subsequent econometric and statistical models to estimate the parameters in the associated models. Moreover, they could then conduct simulations to examine whether the estimators or statistics in the new theories on estimation and hypothesis have small size and high power. Thereafter, academics and practitioners could then apply their theories to analyze interesting problems and issues in the six disciplines and other cognate areas.

show abstract

Section: Indifference Curvessupporting

confidence: 70%

Decision Sciences, Economics, Finance, Business, Computing, and Big Data: Connections

2018

Self Cite

View full text Add to dashboard Cite

show abstract

“…Applying the mean-variance rule for risk averters Markowitz (1952) that A is better than E if µ A ≥ µ E , σ A ≤ σ E and there is at least one strictly inequality, we conclude that risk averters prefer Property A to Property E based on rental yield. On the other hand, if we apply the mean-variance rule for risk seekers (Wong (2006(Wong ( , 2007; ) that A is better than E provided that µ A ≥ µ E , σ A ≥ σ E and there is at least one strict inequality, we conclude that risk seekers prefer Property Ato Property E based on rental yield under the condition that A and E belong to the same location-scale family or the same linear combination of location-scale families Wong (2006Wong ( , 2007. Nonetheless, this conclusion cannot imply the existence of the first-order SD relationship between Properties A and E based on rental yield if A and E do not belong to the same location-scale family or the same linear combination of location-scale families.…”

Section: Illustrationmentioning

confidence: 99%

Stochastic Dominance and Omega Ratio: Measures to Examine Market Efficiency, Arbitrage Opportunity, and Anomaly

2017

Self Cite

View full text Add to dashboard Cite

Both stochastic dominance and Omegaratio can be used to examine whether the market is efficient, whether there is any arbitrage opportunity in the market and whether there is any anomaly in the market. In this paper, we first study the relationship between stochastic dominance and the Omega ratio. We find that second-order stochastic dominance (SD) and/or second-order risk-seeking SD (RSD) alone for any two prospects is not sufficient to imply Omega ratio dominance insofar that the Omega ratio of one asset is always greater than that of the other one. We extend the theory of risk measures by proving that the preference of second-order SD implies the preference of the corresponding Omega ratios only when the return threshold is less than the mean of the higher return asset. On the other hand, the preference of the second-order RSD implies the preference of the corresponding Omega ratios only when the return threshold is larger than the mean of the smaller return asset. Nonetheless, first-order SD does imply Omega ratio dominance. Thereafter, we apply the theory developed in this paper to examine the relationship between property size and property investment in the Hong Kong real estate market. We conclude that the Hong Kong real estate market is not efficient and there are expected arbitrage opportunities and anomalies in the Hong Kong real estate market. Our findings are useful for investors and policy makers in real estate.

show abstract

“…When studying the shape of the indifference curve for risk averse and risk seeking investors, a number of researchers (see Wong, 2006;Sriboonchita et al, 2009; and references therein) have established the following result.…”

Section: Indifference Curves Under the Nm Modelmentioning

confidence: 99%

Prospect Theory and Hedging Risks

Бролл¹,

Egozcue

Wong

et al. 2010

SSRN Journal

Self Cite

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Prospect theory and hedging risks Terms of use: Documents in Udo Broll Martín Egozcue T e c h n i s c h e U n i v e r s i t ä t D r e s d e n U n i v e r s i t y o f M o n t e video F a c u l t y o f B u s i n e s s a n d E c o n o m i c s D e p a r t m e n t o f E c onomics 1 0 6 2 D r e s d e n 1 1 6 0 0 M o n t e v i d e o udo.broll@tu-dresden.de megozcue@correo.um.edu.uy Wong Wing-Keung Riardas Zitikis H o n g K o n g B a p t i s t U n i v e r s i t y U n i v e r s i t y o f W e s t e r n Ontario D e p a r t m e n t o f E c o n o m i c s D e p a r t m e n t o f S t a t i s t i c a l and Actuarial Sciences K o w l o o n T o n g , H o n g K o n g N 6 A 5 B 7 L o n d o n , O n t a r i o , Canada awong@hkbu.edu.hk zitikis@stats.uwo.caAbstract:The prospect theory is one of the most popular decision-making theories. It is based on the S-shaped utility function, unlike the von Neumann and Morgenstern (NM) theory, which is based on the concave utility function. The S-shape brings in mathematical challenges: simple extensions and generalizations of NM theory into the prospect theory cannot be frequently achieved. For example, the nature of monotonicity of the indifference curve depends on the underlying mean. Price hedging decisions also become more complex within the prospect theory. We discuss these topics in detail and offer a general result concerning the sign of a covariance from which we then infer desired properties of the indifference curve and also justify hedging decisions within the prospect theory. We illustrate our general considerations with a thoroughly worked out example.JEL-Classification: D01, D03, D21, D81

show abstract

Stochastic dominance theory for location-scale family

Cited by 48 publications

References 42 publications

Decision Sciences, Economics, Finance, Business, Computing, and Big Data: Connections

Decision Sciences, Economics, Finance, Business, Computing, and Big Data: Connections

Stochastic Dominance and Omega Ratio: Measures to Examine Market Efficiency, Arbitrage Opportunity, and Anomaly

Prospect Theory and Hedging Risks

Contact Info

Product

Resources

About