Increasing convex order of capital allocation with dependent assets under threshold model

Abstract

In this manuscript, we consider a risk-preference investor allocating some amount of capital to the dependent risky asset, where the responding asset will occur default if the stochastic return is less than some predetermined threshold. Then, we present sufficient conditions of the increasing convex order on capital allocation with dependent risky assets when the stochastic return is right tail weakly stochastic arrangement increasing. Finally, some numerical examples are given as illustrations.

Keywords

• Increasing convex order
• asset allocation
• right tail weakly stochastic arrangement increasing (RWSAI)
• threshold