No-arbitrage bounds for financial scenarios

Alois Geyer, Michael Hanke, Alex Weissensteiner

Publikation: Wissenschaftliche FachzeitschriftOriginalbeitrag in FachzeitschriftBegutachtung

Abstract

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.
OriginalspracheEnglisch
Seiten (von - bis)657 - 663
FachzeitschriftEuropean Journal of Operational Research (EJOR)
Jahrgang236
Ausgabenummer2
DOIs
PublikationsstatusVeröffentlicht - 1 März 2014

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