Arbeitspapier
Sufficient conditions of stochastic dominance for general transformations and its application in option strategy
A counterexample is presented to show that the sufficient condition for one transformation dominating another by the second degree stochastic dominance, proposed by Theorem 5 of Levy (Stochastic dominance and expected utility: Survey and analysis, 1992), does not hold. Then, by restricting the monotone property of the dominating transformation, a revised exact sufficient condition for one transformation dominating another is given. Next, the stochastic dominance criteria, proposed by Meyer (Stochastic Dominance and transformations of random variables, 1989) and developed by Levy (Stochastic dominance and expected utility: Survey and analysis, 1992), are extended to the most general transformations. Moreover, such criteria are further generalized to transformations on discrete random variables. Finally, the authors employ this method to analyze the transformations resulting from holding a stock with the corresponding call option.
- Language
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Englisch
- Bibliographic citation
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Series: Economics Discussion Papers ; No. 2017-40
- Classification
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Wirtschaft
Model Construction and Estimation
Criteria for Decision-Making under Risk and Uncertainty
- Subject
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stochastic dominance
transformation
utility theory
option strategy
- Event
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Geistige Schöpfung
- (who)
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Gao, Jianwei
Zhao, Feng
- Event
-
Veröffentlichung
- (who)
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Kiel Institute for the World Economy (IfW)
- (where)
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Kiel
- (when)
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2017
- Handle
- Last update
-
10.03.2025, 11:45 AM CET
Data provider
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Gao, Jianwei
- Zhao, Feng
- Kiel Institute for the World Economy (IfW)
Time of origin
- 2017
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