A Portfolio Optimality Test Based on the First-Order Stochastic Dominance Criterion

Abstract

This paper proposes an algorithm for testing portfolio efficiency with respect to FSD optimality criterion. Using properties of representative set of utility functions for FSD optimality relation, a necessary and sufficient condition for FSD optimality is derived.

Keywords

• Portfolio
• Optimality
• Based
• First-Order
• Stochastic
• Dominance
• Criterion