Arbitrage-Free Condition

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Arbitrage-Free Condition

A situation in which all relevant assets are priced appropriately and there is no way for one's gains to outpace market gains without taking on more risk. Assuming an arbitrage-free condition is important in financial models, thought its existence is mainly theoretical.
References in periodicals archive ?
First, we rewrite the no-arbitrage condition for Northern production.
Now, we substitute this condition into the steady-state no-arbitrage condition above to obtain
These conditions are derived from equilibrium in the market for manufactured goods, the steady-state no-arbitrage conditions, and an equalized rate of return for domestic, and offshored production.
Although the Euler equation for human capital reflects the contribution of human capital across both sectors, the no-arbitrage condition implies that individuals require the same rate of return to both factors of production.
In its present form, the no-arbitrage condition relates how the capital gains from both types of capital must evolve in relationship to both capital stocks along the BGP.
3) The last section discusses how to translate the no-arbitrage condition for bond prices into a no-arbitrage condition for yields.
In this case, the payoffs are so closely related that the price of the option is completely determined by the no-arbitrage condition (that is, the Black-Scholes model).
The no-arbitrage condition for a foreign asset with an income of X*(s) and its domestic perfect substitute yielding X*(s)e(s) is
Looking at Equation (1), the no-arbitrage condition for a riskless foreign asset is given by
As in the Vasicek (1977) model, the no-arbitrage conditions restrict the relative pricing of bonds with different maturities while remaining silent about all other conditions that characterize the equilibrium in the economy.
It first presents theoretical pricing relationships implied by no-arbitrage conditions.
To overcome problems in earlier studies, this study tests theoretical pricing relationships based on no-arbitrage conditions for European stock index options.