On the law of one price

Author: Courtault Jean-Michel  

Publisher: Springer Publishing Company

ISSN: 0949-2984

Source: Finance and Stochastics, Vol.8, Iss.4, 2004-11, pp. : 525-530

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Abstract

We consider the standard discrete-time model of a frictionless financial market and show that the law of one price holds if and only if there exists a martingale density process with strictly positive initial value. In contrast to the classical no-arbitrage criteria, this density process may change its sign. We also give an application to the CAPM.