No-arbitrage bounds




In financial mathematics, no-arbitrage bounds are mathematical relationships specifying limits on financial portfolio prices. These price bounds are a specific example of good-deal bounds, and are in fact the greatest extremes for good-deal bounds.[1]


The most frequent nontrivial example of no-arbitrage bounds is put-call parity for option prices. In incomplete markets, the bounds are given by the subhedging and superhedging prices.[1][2]


The essence of no-arbitrage in mathematical finance is excluding the possibility of "making money out of nothing" in the financial market. This is necessary because the existence of arbitrage is not only unrealistic, but also contradicts the possibility of an economic equilibrium. All mathematical models of financial markets have to satisfy a no-arbitrage condition to be realistic models.[3]



See also



  • Box spread

  • Indifference price



References





  1. ^ ab John R. Birge (2008). Financial Engineering. Elsevier. pp. 521–524. ISBN 978-0-444-51781-4..mw-parser-output cite.citation{font-style:inherit}.mw-parser-output q{quotes:"""""""'""'"}.mw-parser-output code.cs1-code{color:inherit;background:inherit;border:inherit;padding:inherit}.mw-parser-output .cs1-lock-free a{background:url("//upload.wikimedia.org/wikipedia/commons/thumb/6/65/Lock-green.svg/9px-Lock-green.svg.png")no-repeat;background-position:right .1em center}.mw-parser-output .cs1-lock-limited a,.mw-parser-output .cs1-lock-registration a{background:url("//upload.wikimedia.org/wikipedia/commons/thumb/d/d6/Lock-gray-alt-2.svg/9px-Lock-gray-alt-2.svg.png")no-repeat;background-position:right .1em center}.mw-parser-output .cs1-lock-subscription a{background:url("//upload.wikimedia.org/wikipedia/commons/thumb/a/aa/Lock-red-alt-2.svg/9px-Lock-red-alt-2.svg.png")no-repeat;background-position:right .1em center}.mw-parser-output .cs1-subscription,.mw-parser-output .cs1-registration{color:#555}.mw-parser-output .cs1-subscription span,.mw-parser-output .cs1-registration span{border-bottom:1px dotted;cursor:help}.mw-parser-output .cs1-hidden-error{display:none;font-size:100%}.mw-parser-output .cs1-visible-error{font-size:100%}.mw-parser-output .cs1-subscription,.mw-parser-output .cs1-registration,.mw-parser-output .cs1-format{font-size:95%}.mw-parser-output .cs1-kern-left,.mw-parser-output .cs1-kern-wl-left{padding-left:0.2em}.mw-parser-output .cs1-kern-right,.mw-parser-output .cs1-kern-wl-right{padding-right:0.2em}


  2. ^ Arai, Takuji; Fukasawa, Masaaki (2011). "Convex risk measures for good deal bounds" (pdf). Retrieved October 14, 2011.


  3. ^ Fontana, Claudio (May 13, 2014). "Weak and strong no-arbitrage conditions for continuous financial markets" (PDF).











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