Narrowing the No-Arbitrage Bounds

Robert Chambers (rchambers@arec.umd.edu) and John Quiggin

No WPR03_3, Risk & Uncertainty Working Papers from Risk and Sustainable Management Group, University of Queensland

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.

Keywords: arbitrage; state-contingent production (search for similar items in EconPapers)
JEL-codes: D81 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Narrowing the no-arbitrage bounds (2008)
Working Paper: Narrowing the no-arbitrage bounds (2003)
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