Virtual Arbitrage Pricing Theory
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.
|Date of creation:||03 Feb 1999|
|Date of revision:|
|Note:||Type of Document - Postscript; prepared on UNIX Sparc TeX; to print on HP; pages: 12|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
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- Kirill Ilinski & Alexander Stepanenko, 1999. "Derivative pricing with virtual arbitrage," Papers cond-mat/9902046, arXiv.org.
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