A moment-matching method to generate arbitrage-free scenarios

Alessandro Staino and Emilio Russo

European Journal of Operational Research, 2015, vol. 246, issue 2, 619-630

Abstract: We propose a new moment-matching method to build scenario trees that rule out arbitrage opportunities when describing the dynamics of financial assets. The proposed scenario generator is based on the monomial method, a technique to solve systems of algebraic equations. Extensive numerical experiments show the accuracy and efficiency of the proposed moment-matching method when solving financial problems in complete and incomplete markets.

Keywords: Scenarios; Monomial method; Moment-matching (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:246:y:2015:i:2:p:619-630

DOI: 10.1016/j.ejor.2015.04.045

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