Portfolio optimization with stochastic dominance constraints

Darinka Dentcheva; Andrzej Ruszczyński

doi:10.1016/j.jbankfin.2005.04.024

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Journal of Banking & Finance Vol. 30 No. 2 2006

Portfolio optimization with stochastic dominance constraints

Darinka Dentcheva¹; Andrzej Ruszczyński²

¹ Stevens Institute of Technology · ² Rutgers, The State University of New Jersey

Abstract

We consider the problem of constructing a portfolio of finitely many assets whose return rates are described by a discrete joint distribution. We propose a new portfolio optimization model involving stochastic dominance constraints on the portfolio return rate. We develop optimality and duality theory for these models. We construct equivalent optimization models with utility functions. Numerical illustration is provided.

DOI: 10.1016/j.jbankfin.2005.04.024
Volume: 30
Issue: 2
Pages: 433-451
Language: en
Sources: bibtex:phds-export.bib openalex crossref

Portfolio optimization with stochastic dominance constraints

Abstract

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