Pessimistic Portfolio Choice with One Safe and One Risky Asset and Right Monotone Probability Difference Order
Joint Authors
Li, Jiangfeng
Wu, Qiong
Ye, Zhiqiang
Zhang, Shunming
Source
Mathematical Problems in Engineering
Issue
Vol. 2013, Issue 2013 (31 Dec. 2013), pp.1-10, 10 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2013-11-26
Country of Publication
Egypt
No. of Pages
10
Main Subjects
Abstract EN
As is well known, a first-order dominant deterioration in risk does not necessarily cause a risk-averse investor to reduce his holdings of that deteriorated asset under the expected utility framework, even in the simplest portfolio setting with one safe asset and one risky asset.
The purpose of this paper is to derive conditions on shifts in the distribution of the risky asset under which the counterintuitive conclusion above can be overthrown under the rank-dependent expected utility framework, a more general and prominent alternative of the expected utility.
Two new criterions of changes in risk, named the monotone probability difference (MPD) and the right monotone probability difference (RMPD) order, are proposed, which is a particular case of the first stochastic dominance.
The relationship among MPD, RMPD, and the other two important stochastic orders, monotone likelihood ratio (MLR) and monotone probability ratio (MPR), is examined.
A desired comparative statics result is obtained when a shift in the distribution of the risky asset satisfies the RMPD criterion.
American Psychological Association (APA)
Li, Jiangfeng& Wu, Qiong& Ye, Zhiqiang& Zhang, Shunming. 2013. Pessimistic Portfolio Choice with One Safe and One Risky Asset and Right Monotone Probability Difference Order. Mathematical Problems in Engineering،Vol. 2013, no. 2013, pp.1-10.
https://search.emarefa.net/detail/BIM-1010736
Modern Language Association (MLA)
Li, Jiangfeng…[et al.]. Pessimistic Portfolio Choice with One Safe and One Risky Asset and Right Monotone Probability Difference Order. Mathematical Problems in Engineering No. 2013 (2013), pp.1-10.
https://search.emarefa.net/detail/BIM-1010736
American Medical Association (AMA)
Li, Jiangfeng& Wu, Qiong& Ye, Zhiqiang& Zhang, Shunming. Pessimistic Portfolio Choice with One Safe and One Risky Asset and Right Monotone Probability Difference Order. Mathematical Problems in Engineering. 2013. Vol. 2013, no. 2013, pp.1-10.
https://search.emarefa.net/detail/BIM-1010736
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-1010736