Law of one price
Principles of Finance glossary · Valuation of Bonds & Stocks
Definition
The principle that identical assets must trade at identical prices.
Law of one price in plain English
If two things are truly identical, they can't sell for different prices for long, because someone will buy the cheap one and sell the expensive one until the gap closes. That's the law of one price, and it's the bedrock idea behind fair pricing in finance. Think of the exact same phone selling for $400 in one store and $450 next door: shoppers flood the cheaper store, and the prices snap back together. When prices DON'T match, it signals either a hidden difference between the assets or a rare risk-free profit opportunity called arbitrage.
Practice Law of one price
Which of the following describes the 'Law of One Price' as it applies to relative valuation?
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