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Quantitative Finance · Glossary

What is Law of one price?

Definition 1.3 Derivatives and Volatility · Chapter 1 — No Arbitrage and the Fundamental Theorems

The law of one price holds when two portfolios with the same payoff have the same cost: Dθ=Dθ′D\theta=D\theta' implies p⋅θ=p⋅θ′p\cdot \theta=p\cdot\theta'. Under it, every replicable claim has a unique price, the cost of any of its replicating portfolios.

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