New Equilibrium Model Reveals Hidden Market Opportunities Despite Arbitrage Presence
General equilibrium models in continuous time are used to understand how asset prices evolve in financial markets. These models help us predict price movements and identify market inefficiencies. One particular model by Basak and Cuoco shows that there can be arbitrage opportunities in trading strategies, but no one can actually exploit them. This research sheds light on how asset prices are determined and how market dynamics work.