O'Reilly logo

Stochastic Finance, 4th Edition by Alexander Schied, Hans Föllmer

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

2.4Stochastic dominance

So far, we have considered preference relations on distributions defined in terms of a fixed utility function u. In this section, we focus on the question whether one distribution is preferred over another, regardless of the choice of a particular utility function.

For simplicity, we take S = as the set of possible payoffs. Let M be the set of all μ M1() with well-defined and finite expectation

Recall from Definition 2.35 that a utility function on is a strictly concave and strictly increasing function u : . Since each concave function u is dominated by an affine function, the existence of m(μ) implies the existence ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required