The Fundamental Theorem of Asset Pricing

The Fundamental Theorem of Asset Pricing states that, under certain conditions, a financial market is considered “arbitrage-free” if there exists a way to price assets consistently that allows for fair investment opportunities. Essentially, it means that in a well-functioning market, you can determine the fair value of assets so that no one can make a risk-free profit by exploiting price differences. This ensures that all investors are on an equal footing, fostering a stable and efficient market environment where prices reflect true underlying values.