Virtual Arbitrage Pricing Theory

Kirill Ilinski ()

Finance from University Library of Munich, Germany

Abstract: We generalize the Arbitrage Pricing Theory (APT) to include the contribution of virtual arbitrage opportunities. We model the arbitrage return by a stochastic process. The latter is incorporated in the APT framework to calculate the correction to the APT due to the virtual arbitrage opportunities. The resulting relations reduce to the APT for an infinitely fast market reaction or in the case where the virtual arbitrage is absent. Corrections to the Capital Asset Pricing Model (CAPM) are also derived.

Keywords: asset pricing; virtual arbitrage (search for similar items in EconPapers)
JEL-codes: G (search for similar items in EconPapers)
Pages: 12 pages
Date: 1999-02-03
New Economics Papers: this item is included in nep-cfn
Note: Type of Document - Postscript; prepared on UNIX Sparc TeX; to print on HP; pages: 12
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Working Paper: Virtual Arbitrage Pricing Theory (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:9902001

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