Consider a choice between two random variables, for which only means and variances are known. Is it possible to rank them by putting some constraints on risk preferences? We provide such a ranking by bounding how much marginal utility can change. Such bounds enable us to rank all distributions with given means and variances by first-order almost-stochastic dominance. We show how our results can be used to compare a risky project and a sure payoff and also provide a new connection between the Sharpe and Omega ratios from finance.
Tehnical Note - Ranking Distributions When Only Means and Variances Are Known / Müller, Alfred; Scarsini, Marco; Tsetlin, Ilia; Winkler, Robert L.. - In: OPERATIONS RESEARCH. - ISSN 0030-364X. - 70:5(2022), pp. 2851-2859. [10.1287/opre.2020.2072]
Tehnical Note - Ranking Distributions When Only Means and Variances Are Known
Marco Scarsini;
2022
Abstract
Consider a choice between two random variables, for which only means and variances are known. Is it possible to rank them by putting some constraints on risk preferences? We provide such a ranking by bounding how much marginal utility can change. Such bounds enable us to rank all distributions with given means and variances by first-order almost-stochastic dominance. We show how our results can be used to compare a risky project and a sure payoff and also provide a new connection between the Sharpe and Omega ratios from finance.
| File | Dimensione | Formato | |
|---|---|---|---|
|
OR2022mstw.pdf
Solo gestori archivio
Tipologia:
Versione dell'editore
Licenza:
Tutti i diritti riservati
Dimensione
1.01 MB
Formato
Adobe PDF
|
1.01 MB | Adobe PDF | Visualizza/Apri |
Pubblicazioni consigliate
I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
