Dear all, I am new in finance domain and would like to ask one fundamental question:Suppose I have 2 instruments and the difference of the payoff at time T is a "definite figure" like say 'K1 - K2'. Then is it true that the difference of their values at present time will be the discounted value of "K1 - K2", (discounted with some risk free rate)?Is it obvious all time? Is there any fundamental financial axiom (like perhaps, 'law of one price' or something similar) behind above conclusion?Thanks,

As a general rule, yes, but there are many exceptions. Google put-call parity violations for classic examples of why itdoesn't always work.

QuoteOriginally posted by: kindlyMeDear all, I am new in finance domain and would like to ask one fundamental question:Suppose I have 2 instruments and the difference of the payoff at time T is a "definite figure" like say 'K1 - K2'. Then is it true that the difference of their values at present time will be the discounted value of "K1 - K2", (discounted with some risk free rate)?Is it obvious all time? Is there any fundamental financial axiom (like perhaps, 'law of one price' or something similar) behind above conclusion?Thanks,If you have a "definite figure" like say 'K1 - K2' paid at T and B( 0 , T ) is discount factor the price at 0 is B( 0 , T ) [ K1 - K2 ]. Any other answer should be checked whether the price or a method of pricing are interpreted correctly. It was before derivatives market came to the existence and one can suppose that the answer still remains correct after derivatives market came up.

An interesting exercise is to look at the theoretical Black-Scholes value of contracts with payoff S^a. And ln(S).P