Under no-arbitrage, two things whose future cash flows are the same in every outcome have the same price today (the law of one price). Real markets have frictions such as transaction costs and taxes, so no-arbitrage does not hold exactly, but pricing theory is built on the assumption that the effect of these frictions is small.
No-arbitrage
- Japanese
- 無裁定
- Last reviewed
- September 25, 2026
This is a draft, shown for review before publication.
No-arbitrage means that the market offers no opportunity to earn a profit without capital and without risk (an arbitrage opportunity). The theory of derivative prices starts from this condition.