# stochastic dominance problem

2 messages
Open this post in threaded view
|

## stochastic dominance problem

 Hi,       i have a problem quite similar to portfolio selection problem.       i am trying to do a stochastic dominance test to rank these options using R,   the criteria is 'the-higher-the-better' since the random variable is 'profit':       Alt A ~ Normal (mean=10, stDev=2)   Alt B ~ Normal (mean=8,stDev=4)   Alt C ~ Uniform (a=8,b=12)       the question is to order these alternatives according to the stochastic dominance rules, say Second-order Stochastic Dominance and Third-order Stochastic Dominance. Has anyone ever had this kind of problem and solved it using R?       i am new in R as well as in finance field, i really appreciate your suggestion/ help with this problem.       Thank you,   hendry   (i tried to ask to r-help list people, but it seems that i have an email sending problem since it fails)                 ---------------------------------         [[alternative HTML version deleted]] _______________________________________________ [hidden email] mailing list https://stat.ethz.ch/mailman/listinfo/r-sig-finance
Open this post in threaded view
|

## Re: stochastic dominance problem

 I just got one hit from RSiteSearch("stochastic dominance"), but that discussed some other kind of dominance.           If a function to check for that exists in R, it exists under some other name.  However, checking the definition (e.g. "http://cepa.newschool.edu/het/essays/uncert/increase.htm"), I think "stochastic dominance" is so specific it is likely to be of more theoretical than practical interest.  The conditions should be easy enough to check for theoretical distributions.  However, in real portfolio management, I doubt if stochastic dominance is of much practical value, because interest would primarily focus on a list of alternatives among which there exists no clear dominance for all possible utility functions.  Instead, people are most concerned with finding strategies that seem to be better for a given level of risk.           Are you familiar with Rmetrics (www.rmetrics.org)?  The "fPortfolio" and other packages associated with Rmetrics might interest you. Rmetrics is breathtaking in scope but difficult to get into.  If you are new to R but are intereseted in analyzing financial time series, I suggest you start with ch. 14 of Venables and Ripley (2002) Modern Applied Statistics with S, 4th ed. (Sprinter).  Next I recommend you work the vignettes in the zoo package.  From there, you could try many things, including the "dse" bundle and Rmetrics.  For a good reference on statistics in finance, I recommend Ruey Tsay (2005) Analysis of Financial Time Series, 2nd. ed. (Wiley).  It has only a little R, but the contents are, I think, quite important.           hope this helps.           spencer graves hendry raharjo wrote: > Hi, >     >   i have a problem quite similar to portfolio selection problem. >     >   i am trying to do a stochastic dominance test to rank these options using R, >   the criteria is 'the-higher-the-better' since the random variable is 'profit': >     >   Alt A ~ Normal (mean=10, stDev=2) >   Alt B ~ Normal (mean=8,stDev=4) >   Alt C ~ Uniform (a=8,b=12) >     >   the question is to order these alternatives according to the stochastic dominance rules, say Second-order Stochastic Dominance and Third-order Stochastic Dominance. Has anyone ever had this kind of problem and solved it using R? >     >   i am new in R as well as in finance field, i really appreciate your suggestion/ help with this problem. >     >   Thank you, >   hendry >   (i tried to ask to r-help list people, but it seems that i have an email sending problem since it fails) > > > --------------------------------- > > > [[alternative HTML version deleted]] > > _______________________________________________ > [hidden email] mailing list > https://stat.ethz.ch/mailman/listinfo/r-sig-finance_______________________________________________ [hidden email] mailing list https://stat.ethz.ch/mailman/listinfo/r-sig-finance