Mean-Swap Variance, Portfolio Theory, and Asset Pricing
نویسندگان
چکیده
Superior to the variance, "swap variance (SwV)" summarizes the entire probability distribution of returns and is unbiased to distributional asymmetry. Retaining the same simplicity as meanvariance (MV) model, the efficiency of mean-swap variance (MSwV) is necessary and sufficient conditions for that of stochastic dominance. The SwV is composed of a quadratic volatility and a proxy of asymmetric variation (A). The mean-variance-asymmetry (MVA) analysis, a threedimensional extension of the classical MV portfolio theory and the CAPM, is consistent with expected utility maximization for all risk-averse investors and those who are downside loss-averse but prefer the prospect of potential upside gains.
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