Option A: 3, 3, 2, 2, 2, 3, 2, 4, 4, 4, 3, 3, 3, 5, 3, 6, 3, 3, 6, 6, 4, 3, 3, 3, 2 Option B: 4, 4, 1, 2, 2, 2, 5, 3, 6, 6, 8, 6, 6, 6, 4, 4, 7, 7, 7, 7, 3, 5, 3, 5, 5 Option C: 2, 1, 1, 2, 3, 3, 4, 2, 3, 2, 3, 3, 3, 2, 1, 2, 1, 2, 1, 2, 2, 3, 4, 2, 4 Option D: 3, 2, 2, 2, 3, 4, 3, 5, 5, 4, 5, 4, 2, 4, 3, 4, 4, 5, 6, 4, 6, 6, 4, 5, 3
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Determine the FSD efficient set.
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Calculate the geometric mean of the values. What is the relationship
between the ranking of the options by their geometric mean and their
ranking by stochastic dominance?
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Determine the SSD efficient set.
26This is related to the notion of the diminishing marginal utility of money, discussed in Chapter 3. 27Hassan Tehranian, “Empirical Studies in Portfolio Performance Using Higher Degrees of Stochastic Dominance.”Journal of Finanal
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Suppose that an investment alternative has one outcome that is lower than any of the outcomes from the competing investments. Is it possible for this alternative to be in the FSD efficient set?
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Suppose one of the options had an observation of 0. Is it possible for this option to be FSD efficient? To be SSD efficient?
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Comment on the following statement: The problem with stochastic dominance is that it does not consider risk.