Two stochastic dominance criteria based on tail comparisons

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Title: Two stochastic dominance criteria based on tail comparisons
Authors: Mulero, Julio | Sordo, Miguel A. | Souza, Marilia C. de | Suárez-Llorens, Alfonso
Research Group/s: Sistemas Dinámicos y Estadística (SISDINEST)
Center, Department or Service: Universidad de Alicante. Departamento de Matemáticas
Keywords: Left-tail order | Right-tail order | Skew-distributions | Stochastic orders | Tail order | Tail risk
Knowledge Area: Estadística e Investigación Operativa
Issue Date: 2017
Publisher: John Wiley & Sons
Citation: Applied Stochastic Models in Business and Industry. 2017, 33(6): 575-589. doi:10.1002/asmb.2260
Abstract: Actuarial risks and financial asset returns are typically heavy tailed. In this paper, we introduce 2 stochastic dominance criteria, called the right-tail order and the left-tail order, to compare these variables stochastically. The criteria are based on comparisons of expected utilities, for 2 classes of utility functions that give more weight to the right or the left tail (depending on the context) of the distributions. We study their properties, applications, and connections with other classical criteria, including the increasing convex and the second-order stochastic dominance. Finally, we rank some parametric families of distributions and provide empirical evidence of the new stochastic dominance criteria with an example using real data.
Sponsor: Ministerio de Economía y Competitividad (Spain), Grant/Award Number: MTM2014-57559-P.
ISSN: 1524-1904 (Print) | 1526-4025 (Online)
DOI: 10.1002/asmb.2260
Language: eng
Type: info:eu-repo/semantics/article
Rights: © 2017 John Wiley & Sons, Ltd.
Peer Review: si
Publisher version:
Appears in Collections:INV - SISDINEST - Artículos de Revistas
INV - GESTA - Artículos de Revistas

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