Absence of Arbitrage, equivalent measures and the Fundamental Theorem of asset pricing

Ausencia de arbitraje, medidas equivalentes y teorema fundamental de valoración

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Carlos Andrés Zapata Quimbayo

Abstract

This paper identifies the main contributions of Stephen Ross to the definition of the basic principles of the fundamental theorem of asset pricing (FTAP), as well as its applications and extensions. By establishing the equivalence between the absence of arbitrage and the existence of a linear asset pricing rule, Ross formulates the principles of a valuation approach that preserves the essential characteristics of the Black-Scholes model, but from a more  imple and intuitive framework.

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