implied by model. If the price diverges, arbitrage should bring it back into line. Here, to perform the arbitrage, the investor "creates" a correctly priced asset (a synthetic asset), a portfolio with the same net-exposure to each of the macroeconomic factors as the mispriced asset but a different expected return. See the arbitrage pricing theory article for detail on the construction of the portfolio. The arbitrageur is then in a position to make a risk free profit as follows: Where the asset price is too low, the portfolio should have appreciated at the rate implied by the APT, whereas the mispriced asset would have appreciated at more than this rate. The arbitrageur could therefore: Today: short sell the portfolio and buy the mispriced-asset with the proceeds. At the end of the period: sell the mispriced asset, use the proceeds to buy back the portfolio, and pocket the difference. Where the asset price is too high, the portfolio should have appreciated at the rate implied by the APT, whereas the mispriced asset would have appreciated at less than this rate. The arbitrageur could therefore: Today: short sell the mispriced-asset and buy the portfolio with the proceeds. At the end of the period: sell the portfolio, use the proceeds to buy back the mispriced-asset, and pocket the difference. Note that under "true arbitrage", the investor locks-in a guaranteed payoff, whereas under APT arbitrage, the investor locks-in a positive expected payoff. The APT thus assumes "arbitrage in expectations" — i.e. that arbitrage by investors will bring asset prices back into line with the returns expected by the model. The capital asset pricing model (CAPM) is an earlier, (more) influential theory on asset pricing. Although based on different assumptions, the CAPM can, in some ways, be considered a "special case" of the APT; specifically, the CAPM's security market line represents a single-factor model of the asset price, where beta is exposure to changes in the "value of the market" as a whole. No-arbitrage pricing under systemic risk Classical valuation methods like the Black-Scholes model or the Merton model cannot account for systemic counterparty risk which is present in systems with financial interconnectedness. More details regarding risk-neutral, arbitrage-free asset and derivative valuation can be found in the systemic risk article (see also valuation under systemic risk). See also Contingent claim analysis Covered interest arbitrage Efficient-market hypothesis Fair value Fundamental theorem of arbitrage-free pricing Homo economicus