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No-Arbitrage Bounds for Financial Scenarios

We derive no-arbitrage bounds for expected excess returns to generate scenarios used in financial
applications. The bounds allow to distinguish three regions: one where arbitrage opportunities will
never exist, a second where arbitrage may be present, and a third, where arbitrage opportunities
will always exist. No-arbitrage bounds are derived in closed form for a given covariance matrix
using the least possible number of scenarios. Empirical examples illustrate the practical potential
of knowing these bounds. (authors' abstract)

Identiferoai:union.ndltd.org:VIENNA/oai:epub.wu-wien.ac.at:4387
Date16 July 2014
CreatorsGeyer, Alois, Hanke, Michael, Weissensteiner, Alex
PublisherElsevier
Source SetsWirtschaftsuniversität Wien
LanguageEnglish
Detected LanguageEnglish
TypeArticle, PeerReviewed
Formatapplication/pdf
Relationhttp://dx.doi.org/10.1016/j.ejor.2014.01.027, http://www.elsevier.com/, http://epub.wu.ac.at/4387/

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