1999/02/03 by Kirill Ilinski, Ilinski, Kirill
Economics, Econometrics and Finance · Physics and Astronomy · #Complex Systems and Time Series Analysis #FOS: Economics and business #FOS: Physical sciences #Financial Markets and Investment Strategies #Pricing of Securities (q-fin.PR) #Statistical Mechanics (cond-mat.stat-mech) #Stochastic processes and financial applications #cond-mat.stat-mech #q-fin.PR
paper · pdf · doi:10.48550/arxiv.cond-mat/9902045
Latex, 12 pages
arxiv created 1999/02/03 · openalex publication_date 1999/02/03 · arxiv updated 2009/11/30 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
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.