We give a brief introduction to the Gauge Theory of Arbitrage. Treating a calculation of Net Present Values (NPV) and currencies exchanges as a parallel transport in some fibre bundle, we give geometrical interpretation of the interest rate, exchange rates and prices of securities as a proper...

We apply Gauge Theory of Arbitrage (GTA) {hep-th/9710148} to derivative pricing. We show how the standard results of Black-Scholes analysis appear from GTA and derive correction to the Black-Scholes equation due to a virtual arbitrage and speculators reaction on it. The model accounts for both...

In this paper we examine in detail the qualitative effects caused by the investors sensitivity to mark-to-market and price of liquidity. This distorts CAPM-like portfolio construction causing the Capital Line to become curved and eventually inverted. We show that in the world of strongly concave...