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COMPARING LOCAL RISKS BY ACCEPTANCE AND REJECTION
Author(s) -
Schreiber Am
Publication year - 2016
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/mafi.12054
Subject(s) - dominance (genetics) , stochastic dominance , investment (military) , economics , order (exchange) , decision maker , asset (computer security) , investment decisions , microeconomics , actuarial science , econometrics , computer science , finance , behavioral economics , law , political science , biochemistry , chemistry , computer security , management science , politics , gene
It is said that risky asset h acceptance dominates risky asset k if any decision maker who rejects the investment in h also rejects the investment in k . While in general acceptance dominance is a partial order, we show that it becomes a complete order if only infinitely short investment time horizons are considered. Two indices that induce different variants of this order are proposed, absolute acceptance dominance and relative acceptance dominance, and their properties are studied. We then show that many indices of riskiness that are compatible with the acceptance dominance order coincide with our indices in the continuous‐time setup.