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)

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