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...

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...

We characterize a range of Stochastic Dominance relations by means of finite systems of convex inequalities. For 'SD optimality' of degree N=1, 2, 3, 4 and 'SD efficiency' of degree N=2, 3, 4, 5, we obtain exact systems that can be implemented using Linear Programming or Convex Quadratic...