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Narrowing the no-arbitrage bounds

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  • Chambers, Robert G.
  • Quiggin, John

Abstract

The broadness of no-arbitrage bounds on asset prices has led to a number of suggestions on how to narrow them. This paper points out that another, apparently unexploited, opportunity exists for narrowing the no-arbitrage bounds, using information on the production technology. The key analytic concept is that of the derivative-cost function, which is used to define a notion of arbitrage that encompasses both the basis assets and stochastic production opportunities.
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Suggested Citation

  • Chambers, Robert G. & Quiggin, John, 2008. "Narrowing the no-arbitrage bounds," Journal of Mathematical Economics, Elsevier, vol. 44(1), pages 1-14, January.
    • Handle: RePEc:eee:mateco:v:44:y:2008:i:1:p:1-14
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    1. Chambers, Robert G. & Quiggin, John, 2009. "Separability of stochastic production decisions from producer risk preferences in the presence of financial markets," Journal of Mathematical Economics, Elsevier, vol. 45(11), pages 730-737, December.
    2. Chambers, Robert G. & Färe, Rolf, 2011. "Efficiency analysis, shortage functions, arbitrage, and martingales," European Journal of Operational Research, Elsevier, vol. 213(1), pages 349-358, August.
    3. Robert Chambers & John Quiggin, 2010. "Cost minimization and the stochastic discount factor," Annals of Operations Research, Springer, vol. 176(1), pages 349-368, April.

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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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