In a frictionless market, the assumption of no arbitrage is essentially equivalent to the existence of a stochastic discount factor such that the price process of any security with dividend process forms the main building block of standard asset pricing theory that satisfies Equation

Answer rating: 100% (QA)

Arbitrage describes the act of buying a security in one market and simultaneously selling it in another market at a higher price thereby enabling investors to profit from the temporary difference in c... View the full answer