An Effective Algorithm for Estimating Stochastic Dominance Efficient Sets

Abstract

An algorithm to estimate the composition of efficient sets by the stochastic dominance (SD) rules was developed and made available to the public by Porter, Wart, and Ferguson (PWF) [1]. Up to that time the computer central processing unit (CPU) time required for the determination of the SD efficient set was prohibitive for a large number of portfolios. The Porter, Wart, and Ferguson algorithm made possible studies that examined the performance of mutual funds, common stocks, and portfolios using the SD rules. Unfortunately, the FORTRAN program developed by PWF and titled D0MIN2 still requires a large amount of CPU time when the number of portfolios exceeds 100.