[Verse 1] When two markets price the same asset differently Arbitrageurs swoop in immediately Buy the cheap one, sell the high Profits vanish as prices align No free lunch exists in perfect markets Replication builds what nature targets [Chorus] One price law, no arbitrage way Risk-neutral math shows what we pay FRAs lock rates, options protect CDS spreads credit defects Valuation framework, pricing so clear Market mechanics crystal and sheer [Verse 2] Forward rate agreements guarantee Tomorrow's interest certainty Fix the rate on future loans Hedge against rate danger zones Settlement based on LIBOR's move Cash flows smooth when rates prove [Chorus] One price law, no arbitrage way Risk-neutral math shows what we pay FRAs lock rates, options protect CDS spreads credit defects Valuation framework, pricing so clear Market mechanics crystal and sheer [Bridge] Caps put ceilings on rising rates Floors prevent the fall that waits Collars combine both in one trade Swaptions give the right to trade Credit default swaps insure Bond payments stay secure [Verse 3] Risk-neutral pricing magic works Discount at risk-free rate that lurks Expected payoffs calculated clean Probability weights the market scene CDS indices track basket risk Correlation patterns analysts frisk [Chorus] One price law, no arbitrage way Risk-neutral math shows what we pay FRAs lock rates, options protect CDS spreads credit defects Valuation framework, pricing so clear Market mechanics crystal and sheer [Outro] From swaps to caps to default insurance Derivatives build financial endurance Price discovery through replication Forms the backbone of valuation
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