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Evaluating the Efficiency of Portfolio-Hedging Strategies by Incorporating Third Degree Stochastic Dominance Criteria and Data Envelopment Analysis

Evaluating the Efficiency of Portfolio-Hedging Strategies by Incorporating Third Degree Stochastic Dominance Criteria and Data Envelopment Analysis

Margareta Gardijan Kedžo
Copyright: © 2021 |Pages: 25
ISBN13: 9781799850830|ISBN10: 1799850838|ISBN13 Softcover: 9781799854111|EISBN13: 9781799850847
DOI: 10.4018/978-1-7998-5083-0.ch002
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MLA

Gardijan Kedžo, Margareta. "Evaluating the Efficiency of Portfolio-Hedging Strategies by Incorporating Third Degree Stochastic Dominance Criteria and Data Envelopment Analysis." Recent Applications of Financial Risk Modelling and Portfolio Management, edited by Tihana Škrinjarić, et al., IGI Global, 2021, pp. 22-46. https://doi.org/10.4018/978-1-7998-5083-0.ch002

APA

Gardijan Kedžo, M. (2021). Evaluating the Efficiency of Portfolio-Hedging Strategies by Incorporating Third Degree Stochastic Dominance Criteria and Data Envelopment Analysis. In T. Škrinjarić, M. Čižmešija, & B. Christiansen (Eds.), Recent Applications of Financial Risk Modelling and Portfolio Management (pp. 22-46). IGI Global. https://doi.org/10.4018/978-1-7998-5083-0.ch002

Chicago

Gardijan Kedžo, Margareta. "Evaluating the Efficiency of Portfolio-Hedging Strategies by Incorporating Third Degree Stochastic Dominance Criteria and Data Envelopment Analysis." In Recent Applications of Financial Risk Modelling and Portfolio Management, edited by Tihana Škrinjarić, Mirjana Čižmešija, and Bryan Christiansen, 22-46. Hershey, PA: IGI Global, 2021. https://doi.org/10.4018/978-1-7998-5083-0.ch002

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Abstract

The chapter investigates chosen hedging strategies with options as useful risk hedging instruments. Assuming that average investor prefers greater return, is risk-averse, and prefers greater positive skewness, the performance of different hedged and unhedged portfolios is evaluated using stochastic dominance (SD) criteria and data envelopment analysis (DEA). The SD is examined up to the third degree (TSD) using Davidson-Duclos (DD) test. In the DEA, a super efficiency BCC model is used. It is investigated how these two methodologies can be combined and how the TSD criteria can be integrated into DEA in order to simplify the analysis of determining efficient hedging strategies with options.

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