Beyond Arbitrage: Good-Deal Asset Price Bounds in Incomplete Markets
(With Jesus Saa-Requejo.) Journal of Political Economy 108, 79-119, 2000 We add a Sharpe ratio or discount factor volatility constraint to the standard no-arbitrage restriction and obtain useful bounds on option prices in environments that don't allow perfect replication. Most importantly we show how to do this in multiperiod and continuous-time, continuous-trading environments, and there are lots of applications and pretty pictures. Final manuscript with algebra appendix