Stochastic Dominance with Riskless Assets

Ordering Uncertain Options With Borrowing and Lending

“…In this paper we establish general decision rules where no restrictions are imposed on the distributions or on the investor's utility function. Thus, some of the results given in [15] emerge to be a specific case of the results of this paper.…”

“…In another paper [15] we have shown that when riskless asset is allowed a necessary condition for to dominate is . The condition of theorem (3) is much stronger since it implies the condition .…”

“…Levy and Kroll [15] analyze the impact of the inclusion of a riskless asset on first and second degree stochastic dominance rules where the random variables are assumed to be either normal or lognormal. In this paper we establish general decision rules where no restrictions are imposed on the distributions or on the investor's utility function.…”

Portfolio Selection Using Stochastic Dominance Criteria

“…This effect is seen to diminish as upper bounds on portfolio weights are reduced. The LPSSD model tends to reduce portfolio risk to the required level by allocating more weight to the risk-free return, behavior described in Levy and Kroll(1976), and consistent with the strategy suggested by Singleton and Wingender (1986). The QP model tends to reduce portfolio risk by adding many more risky assets with lower expected returns.…”

“…Criteria have been developed for third degree stochastic dominance (TSD) by Whitmore (1970), and for mixtures of risky and riskless assets by Levy and Kroll(1976). However, the SSD criterion is considered the most important in portfolio selection work and is used exclusively in the comparisons described below.…”