Title: Instantaneous Arbitrage and the CAPM,
Abstract: This paper studies the concept of instantaneous arbitrage in continuous time
and its relation to the instantaneous CAPM. Absence of instantaneous arbitrage
is equivalent to the existence of a trading strategy which satisfies the CAPM
beta pricing relation in place of the market. Thus the difference between the
arbitrage argument and the CAPM argument in Black and Scholes (1973) is this:
the arbitrage argument assumes that there exists some portfolio satisfying the
capm equation, whereas the CAPM argument assumes, in addition, that this
portfolio is the market portfolio.