By Lars Tyge Nielsen
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  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.
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