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Applications of Stochastic Dominance Rules

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Stochastic Dominance

Part of the book series: Studies in Risk and Uncertainty ((SIRU,volume 12))

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8.9 Summary

Stochastic dominance is most commonly applied in finance and the economics of uncertainty (e.g., capital structure, portfolio diversification, defining risk, estimating bankruptcy risk, and determining option’s price bounds). Nevertheless, SD applications to portfolio selection have not exploited their potential because SD algorithms to construct a portfolio of risky assets have yet to be developed. However, in other areas, the portfolio issue does not exist (one action rather than a mix of actions is selected); hence, the application of SD is straightforward. It is applied in areas such as agriculture (choosing the best irrigation system), statistics (finding the efficient estimators), and in medicine (selecting an efficient treatment).

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(2006). Applications of Stochastic Dominance Rules. In: Stochastic Dominance. Studies in Risk and Uncertainty, vol 12. Springer, Boston, MA . https://doi.org/10.1007/0-387-29311-6_8

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