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:
“...if we would be and do all that as a rational being we should desire, we must resolve to govern ourselves; we must seek diversity of interests; dread to be without an object and without mental occupation; and try to balance work for the body and work for the mind.”
—Ellen Henrietta Swallow Richards (1842–1911)