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:
“After I went to bed I had a curious fancy as to dreams. In sleep the doors of the mind are shut, and thoughts come jumping in at the windows. They tumble headlong, and therefore are so disorderly and strange. Sometimes they are stout and light on their feet, and then they are rational dreams.”
—James Boswell (1740–1795)