No-arbitrage bounds for financial scenarios

Alois Geyer, Michael Hanke, Alex Weissensteiner

    Research output: Contribution to journalJournal articleResearchpeer-review


    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.
    Original languageEnglish
    JournalEuropean Journal of Operational Research
    Issue number2
    Pages (from-to)657-663
    Publication statusPublished - 2014


    • Finance
    • Scenarios
    • No-arbitrage bounds
    • Financial optimization


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