A sufficient and necessary condition for arbitrage-free pricing

Chen Guo

The European Journal of Finance, 1996, vol. 2, issue 3, 289-295

Abstract: This paper derives a sufficient and necessary condition for arbitrage-free pricing, by the mathematical definition of linear dependency. It states that any pricing function that can be expressed as a linear combination of some of its partial derivatives inherently possesses the arbitrage-free property. This condition can serve as a quick 'reality check' to help search for arbitrage-free asset pricing.

Keywords: arbitrage pricing; partial differential equation; linear dependency; Taylor series (search for similar items in EconPapers)
Date: 1996
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DOI: 10.1080/13518479600000009

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