The "No Arbitrage Principle" has many variations, but the basic idea is that "no" arbitrage can be expected to be found in a real economy. Loose Definition of Arbitrage: A trading strategy that earns something from nothing, no matter how the market evolves in the future.No arbitrage means "create profit without any risk". If markets are complete, under no arbitrage there exists a unique valuation functional. Changes in interest rates can give rise to arbitrage opportunities that, while short-lived, can be very lucrative for traders who capitalize on them. Arbitrage refers to exploiting a price imbalance in the same asset that exists between two or more markets. An arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state.