Arbitrage theory. Introductory lectures on arbitrage-based financial asset pricing (Q1072904)

The aim of this book is to show that the main results of the theory of capital asset pricing can directly be deduced from the assumption that riskless arbitrage opportunities do not exist. After a survey of the manifold models of capital asset pricing (ch. 1) the author shows that the related assumptions themselves can be traced back to the condition that under absence of transaction costs arbitration is effective (ch. 3,4). The procedure is, so to say, contrary to that of the traditional approach: Whereas the latter is interested in proving that, given the preferences and mean variances of investors, an optimal structure of portfolio exists the starting point of this analysis is a situation in which no investor is able to increase his utility by a set of riskless buying and selling activities, i.e. an equilibrium. Therefore the notion of ``no-arbitrage conditions'' implies an efficient capital market in which only the effort of all investors to realize an exceptional success destroys this success. It is the characteristic property of an equilibrium that each participant in the market is faced with a certain price ratio between several goods (in this case a certain rate of substitution between risk and return of assets) containing all informations related to preferences and degrees of risk-aversions.