The absence of arbitrage is the unifying concept for much of finance. Absence of arbitrage is more general than equilibrium because it does not require all agents to be rational. The Fundamental Theorem of Asset Pricing asserts the equivalence of absence of arbitrage, existence of a positive linear pricing rule, and existence of some hypothetical agent who prefers more to less and has an optimum. Equivalent representations of the pricing rule are the martingale measure (risk-neutral pricing), and a positive state price density. Applications of no arbitrage and these representations include Modigliani–Miller theory, option pricing, investments, and forward exchange parity.
Arbitrage Arrow–Debreu model Arbitrage pricing theory Capital asset pricing model Capital budgeting Capital structure Dividend discount model Dividend policy Dominance Duality Efficient allocation Efficient market hypothesis Equivalent martingale measure Farkas’ Lemma Forward exchange, parity theory of Fundamental theorem of asset pricing Hahn–Banach th Hyperplanes Interest rates Law of one price Linear pricing rules Linear programming Markov processes Martingales Modigliani–Miller th No arbitrage Noise Option Option pricing Pricing rule representation th Purchasing power parity Risk premium Risk-neutral probabilities Separation theorems State price density State spaces Trade costs von Neumann and Morgenstern
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