@techreport{NBERw5489,
 title = "Beyond Arbitrage: "Good-Deal" Asset Price Bounds in Incomplete Markets",
 author = "John H. Cochrane and Jesus Saa-Requejo",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "5489",
 year = "1996",
 month = "March",
 URL = "http://www.nber.org/papers/w5489",
 abstract = {It is often useful to price assets and other random payoffs by reference to other observed prices rather than construct full-fledged economic asset pricing models.  This approach breaks down if one cannot find a perfect replicating portfolio.  We impose weak economic restrictions to derive usefully tight bounds on asset prices in this situation.  The bounds basically rule out high Sharpe ratios - `good deals' - as well as arbitrage opportunities.  We present the method of calculation, we extend it to a multiperiod context by finding a recursive solution, and we apply it to option pricing examples including the Black-Scholes setup with infrequent trading, and a model with stochastic stock volatility and a varying riskfree rate.},
}