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Law of one price |
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Law of one price An economic rule stating that a given security must have the same price no matter how the security is created. If the payoff of a security can be synthetically created by a package of other securities, the implication is that the price of the package and the price of the security whose payoff it replicates must be equal. If it is unequal, an arbitrage opportunity would present itself. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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To conclude, while deviations from the law of one price (LOP) or PPP may be stationary, the sources of the deviations can interchange between the nominal exchange rate changes, the relative prices changes or both. |
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