Rational pricing is the assumption in financial economics that asset prices (and hence asset pricing models) will reflect the arbitrage-free price of the asset as any deviation from this price will be "arbitraged away". This assumption is useful in pricing fixed income securities, particularly bonds, and is fundamental to the pricing of derivative instruments.
Read more about Rational Pricing: Arbitrage Mechanics, Fixed Income Securities, Pricing Derivatives, Pricing Shares
Famous quotes containing the word rational:
“We fetch fire and water, run about all day among the shops and markets, and get our clothes and shoes made and mended, and are the victims of these details, and once in a fortnight we arrive perhaps at a rational moment.”
—Ralph Waldo Emerson (1803–1882)