Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
6897446 | European Journal of Operational Research | 2014 | 7 Pages |
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.
Related Topics
Physical Sciences and Engineering
Computer Science
Computer Science (General)
Authors
Alois Geyer, Michael Hanke, Alex Weissensteiner,