Dynamic Stochastic Dominance

Speaker: Leandro Gorno (FGV EPGE, Fundação Getulio Vargas – Brasil)
Cuándo: Miércoles 4 de junio – 12:30 PM (Santiago)
Dónde: Sala Consejo (401) – Beauchef 851, piso 4 | Departamento de Ingeniería Industrial

Abstract:
This paper extends the concept of stochastic dominance to dynamic environments. Our primary result is a characterization of dominance orders between stochastic payoff processes, determined by unanimity among groups of discounted expected utility maximizers. We investigate the implications of this characterization for first-order dynamic stochastic dominance when payoffs follow standard diffusion processes. Additionally, we introduce a measure to quantify the intensity of dominance between payoff processes, which we then use to derive robust bounds on asset price differentials.