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Virtual Arbitrage Pricing Theory

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  • Kirill Ilinski

    (University of Birmingham, UK)

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.

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File URL: http://128.118.178.162/eps/fin/papers/9902/9902001.ps.gz
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 9902001.

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Length: 12 pages
Date of creation: 03 Feb 1999
Date of revision:
Handle: RePEc:wpa:wuwpfi:9902001

Note: Type of Document - Postscript; prepared on UNIX Sparc TeX; to print on HP; pages: 12
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Web page: http://128.118.178.162

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Keywords: asset pricing; virtual arbitrage;

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  1. Kirill Ilinski & Alexander Stepanenko, 1999. "Derivative pricing with virtual arbitrage," Papers cond-mat/9902046, arXiv.org.
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