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Mean-Swap Variance, Portfolio Theory And Asset Pricing, Jhan Wang

Graduate Theses, Dissertations, and Problem Reports

The primary focus of this dissertation is a new risk measure, Swap Variance (SwV), and its applications to expected utility maximization, portfolio theory, and capital asset pricing models (CAPM) with loss aversion and gain preference. Superior to the classical mean-variance (MV) model, the mean-swap variance (MSwV) efficiency is consistent with expected utility maximization for all concave utility without any restriction on the form of either utility function or return distributions. Specifically, the MSwV efficiency is necessary and sufficient to the second-degree stochastic dominance (SSD). Thus, the SSD optimization can be consistently replicated by the SwV minimization for given means. The …