Portfolio optimization with stochastic dominance constraints

TY - JOUR

T1 - Portfolio optimization with stochastic dominance constraints

AU - Dentcheva, Darinka

AU - Ruszczyński, Andrzej

N1 - Funding Information: Research supported by the NSF awards DMS-0303545, DMS-0303728, DMI-0354500 and DMI-0354678.

PY - 2006/2

Y1 - 2006/2

N2 - 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.

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 - http://www.scopus.com/inward/record.url?scp=32944464353&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=32944464353&partnerID=8YFLogxK

U2 - https://doi.org/10.1016/j.jbankfin.2005.04.024

DO - https://doi.org/10.1016/j.jbankfin.2005.04.024

M3 - Article

VL - 30

SP - 433

EP - 451

JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

SN - 0378-4266

IS - 2

ER -