Publication: Sequential arbitrage measurements and interest rate envelopes
Loading...
Identifiers
Publication date
2008-09
Defense date
Authors
Advisors
Tutors
Journal Title
Journal ISSN
Volume Title
Publisher
Springer
Impact
Export
Abstract
This paper proposes new measures that provide us with the level of sequential
arbitrage in bond markets. All the measures vanish in an arbitrage-free market and all of them are positive otherwise. Each measure is generated by a dual pair of optimization problems. Primal problems permit us to compute optimal sequential arbitrage strategies, if available. Each dual problem generates a concrete proxy for the term structure of interest rates. The set of proxies allows us to obtain the exact
market price of any bond and may measure several effects. For instance, the credit
risk spread of nondefault free bonds, or the embedded option price of callable or
extendible bonds. The developed theory has been tested empirically.
Description
Keywords
Portfolio optimization, Sequential arbitrage measurements, Term structure of interest rates, Embedded option premiums
Bibliographic citation
Journal of Optimization Theory and Applications, 2008, v.138, nº 3, pp. 361-374