... variant of thelaw of one price or the principle of no riskless arbitrage, whichdictates, more narrowly, that only two portfolios with exactlythe same future payoffs in all states of the world ... portfolio of lowervolatility. More specifically, one can instantaneously constructa portfolio V consisting of w shares of P and 1 − w shares of B, with w chosen so that the instantaneous volatility of ... the ratio of the covariance σiM of stocki with the market to the variance of the market σ2M.By substituting the value of iin equation (2.29)into (2.27) one finds that the value of the market-neutral...