ID : 1033
Studies ; Stochastic models ; Statistical analysis ; Securities markets ; Management science ; Dominance ; Algorithms
Tests for first-, 2nd-, and 3rd-degree stochastic dominance using financial market data have been performed since the early 1970s.  The existing algorithms, however, fail to exploit the fact that the returns of assets quoted on a financial market are de facto assumed to be distributed over a uniform probability measure.  It is shown that substantial computational savings can be realized if this fact is taken into account.  It is known that when the random variables being compared have a uniform probability measure, as is the case when using financial market data, the computation of efficient sets for first- and 2nd-degree dominance can be greatly simplified if majorization conditions are used instead of the dominance definitions.  An equally efficient technique for 3rd-degree dominance is presented.
Efficient algorithms for stochastic dominance tests based on financial market data, Aboudi, Ronny; Thon, Dominique, Management Science, 40:4, Apr 1994
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