@article{Quintino2024, 
author = {Felipe S. Quintino and Melquisadec Oliveira and Pushpa N. Rathie and Luan C. S. M. Ozelim and Tiago A. da Fonseca},
title = {Asset selection based on estimating stress-strength probabilities: The case of returns following three-parameter generalized extreme value distributions},
year = {2024},
journal = {AIMS Mathematics},
volume = {9},
number = {1},
pages = {2345-2368},
keywords = {stress-strength reliability, H-functions, generalized extreme value distribution},
url = {https://www.sciopen.com/article/10.3934/math.2024116},
doi = {10.3934/math.2024116},
abstract = {Analyzing the statistical behavior of the assets' returns has shown to be an interesting approach to perform asset selection. In this work, we explore a stress-strength reliability approach to perform asset selection based on probabilities of the type    P  (  X  <  Y  ) when both    X and    Y follow a generalized extreme value (GEV) distribution with three parameters. At first, we derive new analytical and closed form relations in terms of the extreme value        H  -function, which have been obtained under fewer parameter restrictions compared to similar results in the literature. To show the performance of our results, we include a Monte-Carlo simulation study and we investigate the application of the reliability measure    P  (  X  <  Y  ) in selecting financial assets with returns characterized by the distributions    X and    Y. Therefore, rather than the conventional approach of comparing the expected values of    X and    Y based on modern portfolio theory, we delve into the metric    P  (  X  <  Y  ) as an alternative parameter for assessing better returns.}
}