The concept of absence of arbitrage is crucial in finance, as it is more general than equilibrium and does not require all agents to be rational. The Fundamental Theorem of Asset Pricing shows that absence of arbitrage is equivalent to the existence of a positive linear pricing rule and a hypothetical agent who prefers more to less. This can be represented by the martingale measure or a positive state price density. Applications of this concept include Modigliani–Miller theory, option pricing, investments, and forward exchange parity.