Arbitrage-Free Dispersion, Divergence and Related Fields
We introduce arbitrage-free dispersion (AFD) as a useful unifying tool to caracterize model-free asset pricing relations between Stochastic Discount Factors (SDFs) and returns. AFD measures Jensen’s gap in the cumulant generating function of SDFs and returns and it yields a large family of model-free dispersion constraints, which extend dispersion and co-dispersion bounds in the literature and are applicable in general multivariate economies. We review applications of AFD to compute model-free multivariate SFD bounds and SDF similarity proxies. Finally, we discuss its relation to measures of tradable realised dispersion replicated by divergence swaps.
Fabio Trojani, Finance Professor at the Geneva School of Economics and Management (GSEM), SFI senior Chair
Fabio Trojani is a full professor of Finance at the University of Geneva since September 2015, a Senior Chair of the Swiss Finance (SFI) Institute and an Adjunct Professor of Finance at University Bocconi in Milan. He is an on leave full professor of Statistics at the Università della Svizzera italiana and was a professor of Finance at the University of St Gallen from 2004 to 2008. Fabio holds a PhD in Econometrics and Finance from the University of Zurich. He is director of several research projects of the Swiss National Science foundation and a co-editor of the Journal of Financial Econometrics. His research covers topics in Finance, Econometrics, and Statistics, areas in which he has published widely and is a regular speaker at international conferences.