[Verse 1] In the world of bonds there's a golden rule No free money floating in this market pool When prices don't align across the yield curve line Someone's making profit that should not be mine Arbitrage means profits with no risk at all But efficient markets won't let that ball fall So we build a framework to keep prices fair Making sure no free lunch is floating in the air [Chorus] No arbitrage, no arbitrage Keep the prices in their cage Same cash flows, same present value That's the rule we must pursue No arbitrage, no arbitrage Turn the pricing theory page If you find a gap today Market forces smooth the way [Verse 2] Start with government bonds, the risk-free base Build your yield curve step by step with grace Each maturity point must fit just right No gaps or jumps that don't look quite right Bootstrap method pulls the rates apart From the curve we see, we build from the start Short rates first, then longer ones in line Creating spot rates, pure and so refined [Chorus] No arbitrage, no arbitrage Keep the prices in their cage Same cash flows, same present value That's the rule we must pursue No arbitrage, no arbitrage Turn the pricing theory page If you find a gap today Market forces smooth the way [Bridge] Forward rates are locked in tight Today's curve shows tomorrow's light If the future doesn't match Traders jump to fill that gap Replication is the key Build the same cash flows you see If two bonds pay the same Then their prices are the same [Verse 3] Corporate bonds add credit spread on top Risk premium makes the yield rate hop But even then the framework still applies No free money hiding in disguise Swap curves, LIBOR, treasury bills All must follow these pricing rules and skills The framework works for every bond type Keep arbitrage completely out of sight [Chorus] No arbitrage, no arbitrage Keep the prices in their cage Same cash flows, same present value That's the rule we must pursue No arbitrage, no arbitrage Turn the pricing theory page If you find a gap today Market forces smooth the way [Outro] Consistent pricing across every trade That's how efficient markets are made No arbitrage framework shows the way Fair bond prices every single day
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