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| Author: | Cochrane, J. |
| Title: | Beyond arbitrage: good-deal asset price bounds in incomplete markets |
| Journal: | Journal of Political Economy
2000 : FEB, VOL. 108:1, p. 79-119 |
| Index terms: | POLITICAL ECONOMY ASSETS INCOMPLETE MARKETS |
| Language: | eng |
| Abstract: | One often wants to value a risky payoff by reference to prices of other assets rather than by exploiting full-fledged economic models. However, this approach breaks down if one cannot find a perfect replicating portfolio. The authors impose weak economic restrictions to derive usefully tight bounds on asset prices in this situation. The bounds assume that investors would want to buy assets with high Sharpe rations - "good deals" - as well as pure arbitrage opportunities. |
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