A new characterization of second-order stochastic dominance
Fuente:
arXiv
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| Autori principali: | , , |
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| Natura: | Preprint |
| Pubblicazione: |
2024
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| _version_ | 1866913520548839424 |
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| author | Guan, Yuanying Huang, Muqiao Wang, Ruodu |
| author_facet | Guan, Yuanying Huang, Muqiao Wang, Ruodu |
| contents | We provide a new characterization of second-order stochastic dominance, also known as increasing concave order. The result has an intuitive interpretation that adding a risk with negative expected value in adverse scenarios makes the resulting position generally less desirable for risk-averse agents. A similar characterization is also found for convex order and increasing convex order. The proof techniques for the main result are based on properties of Expected Shortfall, a family of risk measures that is popular in banking and insurance regulation. Applications in risk management and insurance are discussed. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2402_13355 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | A new characterization of second-order stochastic dominance Guan, Yuanying Huang, Muqiao Wang, Ruodu Risk Management We provide a new characterization of second-order stochastic dominance, also known as increasing concave order. The result has an intuitive interpretation that adding a risk with negative expected value in adverse scenarios makes the resulting position generally less desirable for risk-averse agents. A similar characterization is also found for convex order and increasing convex order. The proof techniques for the main result are based on properties of Expected Shortfall, a family of risk measures that is popular in banking and insurance regulation. Applications in risk management and insurance are discussed. |
| title | A new characterization of second-order stochastic dominance |
| topic | Risk Management |
| url | https://arxiv.org/abs/2402.13355 |