TY - JOUR
T1 - Orderings and probability functionals consistent with preferences
AU - Ortobelli, Sergio
AU - Rachev, Svetlozar T.
AU - Shalit, Haim
AU - Fabozzi, Frank J.
N1 - Funding Information:
The authors gratefully acknowledge the guidance provided by the Associate Editor, William Ziemba, and the referee, Leonard MacLean. Sergio Ortobelli’s research was partially supported under Murst 60% 2006, 2007, 2008. Svetlozar Rachev’s research was supported by grants from the Division of Mathematical, Life and Physical Sciences, College of Letters and Science, University of California, Santa Barbara, and the Deutsche Forschungsgemeinschaft.
PY - 2009/3/11
Y1 - 2009/3/11
N2 - This paper unifies the classical theory of stochastic dominance and investor preferences with the recent literature on risk measures applied to the choice problem faced by investors. First, we summarize the main stochastic dominance rules used in the finance literature. Then we discuss the connection with the theory of integral stochastic orders and we introduce orderings consistent with investors' preferences. Thus, we classify them, distinguishing several categories of orderings associated with different classes of investors. Finally, we show how we can use risk measures and orderings consistent with some preferences to determine the investors' optimal choices.
AB - This paper unifies the classical theory of stochastic dominance and investor preferences with the recent literature on risk measures applied to the choice problem faced by investors. First, we summarize the main stochastic dominance rules used in the finance literature. Then we discuss the connection with the theory of integral stochastic orders and we introduce orderings consistent with investors' preferences. Thus, we classify them, distinguishing several categories of orderings associated with different classes of investors. Finally, we show how we can use risk measures and orderings consistent with some preferences to determine the investors' optimal choices.
UR - http://www.scopus.com/inward/record.url?scp=61649105025&partnerID=8YFLogxK
U2 - 10.1080/13504860802327180
DO - 10.1080/13504860802327180
M3 - Article
AN - SCOPUS:61649105025
SN - 1350-486X
VL - 16
SP - 81
EP - 102
JO - Applied Mathematical Finance
JF - Applied Mathematical Finance
IS - 1
ER -