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Well then what is the lower bound? The standard way to prove inequalities that should exist in a free market is through showing arbitrage patterns. This way one
by xxxyy 12y ago
Well then what is the lower bound? The standard way to prove inequalities that should exist in a free market is through showing arbitrage patterns. This way one can prove f.eg. that a call option should never be more expensive than the underlying security, or that a call plus a put is essentially a futures contract.
How do we show the lower bound on bond yield rate? Arbitrage executed through a company that employs exhaustive security measures allowing its clients to store pallets of cash? It still depends on time-varying factors, such as employee costs, utilities, the probability of a random natural disaster or the probability of a fire wrecking the entire building.
- darkmighty 12y agoYes, that lower bound is a function of all those things: security costs, labor costs, etc. They can be laboriously approximately quantified. But it surely exists: for example, it's inconceivable the rate to ever reach -30% because storing money will never get that expansive in normal conditions (please discount apocalyptic scenarios).