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Narrowing the No-Arbitrage Bounds

  • Robert G. Chambers

    ()

    (Dept of Agricultural and Resource Economics, University of Maryland, College Park)

  • John Quiggin

    ()

    (Department of Economics, University of Queensland)

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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File URL: http://www.uq.edu.au/rsmg/WP/WPR03_3.pdf
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Paper provided by Risk and Sustainable Management Group, University of Queensland in its series Risk & Uncertainty Working Papers with number WPR03_3.

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Handle: RePEc:rsm:riskun:r03_3
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  1. Estrella, Arturo & Hardouvelis, Gikas A, 1991. " The Term Structure as a Predictor of Real Economic Activity," Journal of Finance, American Finance Association, vol. 46(2), pages 555-76, June.
  2. Chambers, Robert G & Quiggin, John, 2003. "Dual structures for the sole-proprietorship firm," Risk and Sustainable Management Group Working Papers 150352, University of Queensland, School of Economics.
  3. Cochrane, John H, 1996. "A Cross-Sectional Test of an Investment-Based Asset Pricing Model," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 572-621, June.
  4. Lars Peter Hansen & Ravi Jagannathan, 1994. "Assessing specification errors in stochastic discount factor models," Staff Report 167, Federal Reserve Bank of Minneapolis.
  5. Lars Peter Hansen & Ravi Jagannathan, 1990. "Implications of security market data for models of dynamic economies," Discussion Paper / Institute for Empirical Macroeconomics 29, Federal Reserve Bank of Minneapolis.
  6. Robert G. Chambers & John Quiggin, 2003. "Separability of stochastic production decisions from producer risk preferences in the presence of financial markets," Risk & Uncertainty Working Papers WPR03_4, Risk and Sustainable Management Group, University of Queensland.
  7. N. French & C. Ward, 1993. "Valuation and arbitrage," ERES eres1993-121, European Real Estate Society (ERES).
  8. Dreze, Jacques H, 1985. "(Uncertainty and) the Firm in General Equilibrium Theory," Economic Journal, Royal Economic Society, vol. 95(380a), pages 1-20, Supplemen.
  9. Ross, Stephen A, 1987. "Arbitrage and Martingales with Taxation," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 371-93, April.
  10. Ross, Stephen A, 1978. "A Simple Approach to the Valuation of Risky Streams," The Journal of Business, University of Chicago Press, vol. 51(3), pages 453-75, July.
  11. TallariniJr., Thomas D., 2000. "Risk-sensitive real business cycles," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 507-532, June.
  12. Chambers,Robert G. & Quiggin,John, 2000. "Uncertainty, Production, Choice, and Agency," Cambridge Books, Cambridge University Press, number 9780521622448.
  13. Jermann, Urban J., 1998. "Asset pricing in production economies," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 257-275, April.
  14. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
  15. Clark, Stephen A., 1993. "The valuation problem in arbitrage price theory," Journal of Mathematical Economics, Elsevier, vol. 22(5), pages 463-478.
  16. repec:dau:papers:123456789/5630 is not listed on IDEAS
  17. repec:crs:wpaper:9513 is not listed on IDEAS
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