Acta Oeconomica Pragensia 2013, 21(1):26-45 | DOI: 10.18267/j.aop.391

Analysis of the Capital Market Via Stochastic Dominance and Multi-Criteria Interactive Method

Adam Borovička
Vysoká škola ekonomická v Praze, Fakulta informatiky a statistiky (adam.borovicka@vse.cz).

Two levels can be identified in the article. The first one is related to a theoretical introduction to the known stochastic dominance approach and the interactive multi-objective programming method; in the second we apply the aforesaid quantitative approaches to making an "optimal" portfolio structure of shares funds. We use the draft of stochastic dominance for a reduction in a relatively huge set of investment opportunities. The application of the stochastic dominance principle is determined by the stochastic character of the studied problem. The yield rate of shares funds is stated as a random variable. We also apply the Monte Carlo method in the investment decision-making procedure. For finding an "optimal" portfolio form, we use the interactive multi-criteria programming method, the computational algorithm of which is based on maximization of positive deviation from aspiration levels of separate objective functions (criteria). After all the procedures, including successive revision of solutions offered by analysts according to decision-maker preferences, we obtain a final portfolio form of shares funds.

Keywords: portfolio, decision-making, stochastic dominance
JEL classification: C44, C61, G11

Published: February 1, 2013  Show citation

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Borovička, A. (2013). Analysis of the Capital Market Via Stochastic Dominance and Multi-Criteria Interactive Method. Acta Oeconomica Pragensia, 21(1), 26-45. doi: 10.18267/j.aop.391
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