Glossary of economics research
Results of search for no-arbitrage bounds follow:
no-arbitrage bounds:
Describes the outer limits on a price in a model where that price must meet a
no-arbitrage condition.
In many models a price is completely determined by a no-arbitrage condition,
but if some frictions are modeled -- transactions costs or liquidity
constraints, for example -- then a no-arbitrage condition defines a range of
possible prices, because tiny variations from the theoretical no-arbitrage
price are not large enough to make arbitrage profits feasible. The range of
possible prices is bounded by the "no-arbitrage bounds"
Source: McDonald, Robert L. 1998. "Dividend Tax Credits, the Ex-day,
and Cross-Border Tax Arbitrage: The Case of Germany", Working paper,
Kellogg School of Management's Finance department, Northwestern University.
Page 4 has an example of this term in use.
Contexts: finance
Back to top