Arbitrage-Free Condition

(redirected from No-Arbitrage Conditions)

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 ?
Since puts, calls, and forwards are typically priced under no-arbitrage conditions, it is not surprising that all the above equivalence relationships result in the fair value of the nonmarketable and marketable security being equal.
In fact, some have argued that because of frictions or inability to practically hedge, no-arbitrage arguments should not necessarily apply, or the no-arbitrage condition should not be required in a fair value framework.
Marketability Discounts, Fair Value, and the Forgotten Market Participant: When Do Discounts Represent Distortions?
99% accuracies when predicting no-arbitrage conditions.
Conditions of pure arbitrage applications: evidence from three currencies
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.
No-arbitrage restrictions and the U.S. Treasury market
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.
Next, the effective labor supplies (Equation [14]), product development costs (Equation [16]), and the wage equations for the labor market can be substituted into the no-arbitrage conditions to obtain
A quick observation of the no-arbitrage conditions makes it clear that when both domestic and offshored production exist the associated operating profits must be equal, [pi] =[[pi].
Offshoring production: a simple model of wages, productivity, and growth
Next, bond pricing is introduced in a world of perfect certainty, in which no-arbitrage conditions are first worked out algebraically.
The central implication of the no-arbitrage conditions is that the risk premium for an asset can be decomposed into the amount of risk (measured by volatility) and the price of risk (which reflects investors' attitudes toward risk), where the price of risk is common to all assets.
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).
Forces That Shape the Yield Curve
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.
Evidence on the Efficiency of Index Options Markets
Financial browser ?
Full browser ?