The basic intuition that underlies valuation is the absence of arbitrage. The No Arbitrage condition is not strong enough and one has to impose stronger condition such as "No Free Lunch" or "No Free Lunch with Vanishing Risk".Loose Definition of Arbitrage: A trading strategy that earns something from nothing, no matter how the market evolves in the future. An arbitrage opportunity is a way of making money with no initial investment without any possibility of loss. This imposes tight restrictions on their yields. Separately modeling bonds of different maturities can easily violate no arbitrage restrictions. 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. In complete markets prices are arbitrage-free if and.