Dynamic Stochastic Dominance

Speaker: Leandro Gorno (FGV EPGE, Fundação Getulio Vargas – Brazil)
When: Wednesday, June 4 – 12:30 PM (Santiago)
Where: Sala Consejo (401) – Beauchef 851, 4th floor | Department of Industrial Engineering

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.