[Verse 1]
In the market where the prices flow
There's a rule that every trader knows
No arbitrage means one fair price
Same asset can't be sold twice
If you find two different quotes today
Buy the low and sell away
Law of one price keeps it clean
Replication builds the pricing machine
[Chorus]
No arbitrage, one price to pay
Risk neutral makes the math okay
Forward rates and options too
CDS spreads will guide you through
Price it right, value it true
Framework built for me and you
[Verse 2]
Risk neutral world is where we play
Expected returns all the same way
Discount everything at risk-free rate
Makes our calculations straight
Forward rate agreements lock the deal
Interest rates become so real
Set today what you'll pay tomorrow
No more interest rate sorrow
[Chorus]
No arbitrage, one price to pay
Risk neutral makes the math okay
Forward rates and options too
CDS spreads will guide you through
Price it right, value it true
Framework built for me and you
[Bridge]
Caps protect you when rates go high
Floors will catch you if they die
Collars give you both combined
Swaptions keep peace of mind
Credit default swaps insure
Against the risk you can't endure
Indices spread the risk around
Sound foundations can be found
[Verse 3]
CDS pricing tells the tale
Of credit risk without fail
Higher spreads mean danger near
Lower spreads keep skies clear
Market makers quote the price
Based on probability's dice
Five year standard is the norm
Protecting from the credit storm
[Final Chorus]
No arbitrage, one price to pay
Risk neutral makes the math okay
Forward rates and options too
CDS spreads will guide you through
Price it right, value it true
Framework built for me and you
Framework built for me and you