Theoretical concepts together with estimation and optimization methods for portfolio choice based on Stochastic Dominance are reviewed. Distinction is drawn between the concepts of Pairwise Dominance, Admissibility, Optimality, Efficiency and Spanning. Results of selected empirical studies and...

Concepts are introduced for analyzing arbitrage portfolios in the face of ambiguity about investor risk preferences and initial portfolio holdings. A Stochastic Arbitrage Opportunity is a self-financing overlay portfolio which enhances every feasible host portfolio for all relevant utility...

This study develops and implements a theory and method for analyzing whether introducing new securities or relaxing investment constraints improves the investment opportunity set for risk averse investors. We develop a test procedure for ‘stochastic spanning’ for two nested polyhedral...

We develop and implement a portfolio optimization method for building investment portfolios that dominate a given benchmark index in terms of third-degree stochastic dominance. Our approach relies on the properties of the semi-variance function, a refinement of an existing 'super-convex'...

We develop an optimization method for constructing investment portfolios that dominate a given benchmark index in terms of third-degree stochastic dominance. Our approach relies on the properties of the semivariance function, a refinement of an existing ‘super-convex' dominance condition and...

To analyze the economic significance of pricing errors of stock index options, a system of linear inequalities is developed which completely characterizes all risk arbitrage opportunities which arise if a well-behaved pricing kernel does not exist. The Stochastic Arbitrage system can account for...

If a given risky prospect is compared with multiple choice alternatives, then a joint test for optimality is more appropriate than a series of pairwise Stochastic Dominance tests. We develop and implement a bootstrap empirical likelihood ratio test for this hypothesis. The test statistic and...

This supplementary Technical Appendix contains formal proofs of the propositions which are stated in Anyfantaki, S., S. Arvanitis, S., Th. Post, Th. and N. Topaloglou, 2019, 'Stochastic Bounds for Portfolio Analysis', available at SSRN:"https://ssrn.com/abstract=3181869 "...

A framework is developed for portfolio optimization with higher-order Stochastic Dominance constraints. A finite system of restrictions on the lower partial moments can be used for evaluating the efficiency of a given benchmark and for constructing enhanced portfolios which dominate the...

This paper provides a novel five-component decomposition of optimal dynamic portfolio choice. It reveals the simultaneous impacts from market incompleteness and wealth-dependent utilities. The decomposition leads to implementation via either closed-form solutions or Monte Carlo simulations. With...