# Tag Info

Accepted

### Why stochastic dominance is "stochastic"?

In the below figure, CDF $F(\cdot)$ is first-order stochastically dominated by $G(\cdot)$. But $X_1$ and $X_2$ fall within the support of both distributions. So it would be possible to draw $X_1$ from ...
• 17k

### Does my research prove market inefficiency?

The efficient market hypothesis does not imply that there are no patterns! As Eugene Fama pointed out decades ago, any test of market efficiency is a joint test of market efficiency and an asset ...
• 906
Accepted

### Quadratic utility: monotonicity and risk aversion

Quadratic utility is given by $$u(w) = w - b w^2$$ which has derivative $$u'(w) = 1- 2b w$$ such that for high levels of $w, u'(w)<0$. That is, the utility is not everywhere increasing. This may be ...
• 5,291
Accepted

### Can data be created using Monte Carlo Simulation

YES I’ll give an example in R. ...
• 410

### Utility theory and portfolio optimization: utility of what exactly?

In mean-variance optimisation I have typically seen the below quadratic utility function where $𝐸[𝑅]$ is the expected return (or mean return) of a possible portfolio, $\sigma^{2}$ is the return ...
• 1,097

### The efficient frontier in mean variance criterion

Using $\mathbb E$ for the expected value symbol, $E_R$ and $V_R$ for the mean and the avriance of returns $R$, for a utility function of the form $$U(R) = \ln(1+R)$$ the second-order Taylor expansion ...
• 33.9k

### Can data be created using Monte Carlo Simulation

The library TensorFlow Probability is designed for this purpose. In fact, the first example currently at the web site involves the creation of synthetic data which is then used for a regression ...
• 131

### Budget line for mean variance utility

For example, considering the allocation between two identical assets with identical mean and variance but independent correlation. Then, the allocated portfolio reduces the variance but keeps the mean ...
• 29.6k
Accepted

1 vote

### Flat Term Structure and Immunized Portfolio Strategy

Note: This answer is preliminary, as I am unsure about some components of the question. I will note that it is a very long time since I studied portfolio immunization, and so I am describing how this ...
• 9,907
1 vote
Accepted

### Two Funds Separation & CAPM

An equlibrium is a property of an entire market, not of any given investor's portfolio. The CAPM is an equilibrium theory. In equilibrium, all (nontoxic!) assets must have non-negative prices. Hence, ...
• 420
1 vote

### Does my research prove market inefficiency?

By itself, no it does not, at least how I am understanding your post. While I am an opponent of the Efficient Market Hypothesis, what you would need to show is that there is a "free lunch," with your ...
• 2,006
1 vote

### How do economists model VNM-rationality violation?

It appears you are looking for literature on Ambiguity Aversion and/or "Uncertainty Aversion". You can start by looking up the work of L.G Epstein, I. Gilboa, and D. Schmeidler. It is an attempt to ...
• 33.9k

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