Arpeggios can be substituted in the same way chords can.
The basic definition of a Arpeggio is playing a chord one note at a time.

So YES arpeggios function musically as a chord.

For example: It is common in jazz (and less frequently in other styles especially rock) to substitute one chord for another. For example Am7 chord is often substituted for C chord and C is often substituted for Am7. This concept can be applied  to arpeggios also. If you were improvising over a C chord you could play an Am7 arpeggio or if you were improvising over Am7 chord you could play C arpeggio. Substitution can add interest and surprise to any solo.

Am7 (A-C-E-G) shares some of the same notes as C (C-E-G), but you can see Am7 adds an A note to the mixture. Adding an A note (6th interval) the C chord changes the harmony, and the actual sound is (when mixed) is C6. C6 is a very common embellishment and substitute for a "vanilla" C. When you experiment with arpeggio substitution it is important and fun to determine how you have changed the chord.

Diatonic Arpeggio Substitution
For the 1 (major) Chord

Substitutions can be Diatonic Diatonic means of the key which means your substitution arpeggios are harmonized from the same scale (or key). According to the rules of tension and resolution described herein these arpeggios can be substituted safely (with the least amount of tension).

In any chord progression the chords function as tension or resolution. This adds interest to the melody. With many jazz standards the tension and resolution may occur many times. As described earlier the most common tension to resolution cadence is V7 to 1. The resolution chord in this V7 to 1 progression example is major (or an embellished major). But no matter how the I chord is embellished (i.e. C, C6, C/6/9, Cmaj7, Cmaj9) you can freely substitute any of the arpeggios listed below. So keep in mind: the arpeggios here are diatonic and safe and can be used when the written chord is Major.

Remember: Improvisation is making decisions on the fly. And ultimately, if you decide the substitution sounds good, then it is good!

Here is a list of diatonic arpeggio possibilities for any major chord. This example is in C but the principles and relationships can and should be transposed to all keys.

Original Chord	Arpeggio Substitution	Sounds Like	Substitution Rule
C (C-E-G)	Am (A-C-E)	C6 (C-E-G-A)	6m for Major
C (C-E-G)	Am7 (A-C-E-G)	C6 (C-E-G-A)	6m7 for Major
C (C-E-G)	Am9 (A-C-E-G-B)	Cmaj6/9 (C-E-G-A-B)	6m9 for major
C (C-E-G)	Em (E-G-B)	Cmaj7 (C-E-G-B)	3m for Major
C (C-E-G)	Em7 (E-B-G-D)	Cmaj9 (C-E-G-B-D)	3m7 for Major
C (C-E-G)	G (G-B-D)	Cmaj9 (C-E-G-B-D)	5 for major

Diatonic Arpeggio Substitution
For the 57 (dominant seventh) Chord

The V7 chord in the V7 to I progression is a dominant seventh chord (i.e. G7). The V7 chord is a tension (unresolved) chord and needs to resolve to a chord a fourth interval away (the most resolved chord is a major but it can be minor or dominant seventh, i.e. G7 resolves to C, A7 resolves to D, Bb7 resolves to Eb etc.) And since an arpeggio functions the same as a chord, you should practice playing a dominant seventh arpeggio (or substitution) resolving to a major arpeggio (or substitution).

Here is a short list of diatonic arpeggio possibilities for a dominant seventh chord. All these arpeggios are diatonic and "safe" and can be used when the written chord is dominant seventh

Original Chord	Arpeggio Substitution	Sounds Like	Substitution Rule
G7 (G-B-D-F)	Dm (D-F-A)	G9 (G-B-D-F-A)	5m for dom. 7th
G7 (G-B-D-F)	Dm6 (D-F-A-B)	G9 (G-B-D-F-A)	5m6 for dom. 7th
G7 (G-B-D-F)	Dm7 (D-F-A-B-C)	G9/11 (G-B-D-F-A-C)	5m7 for dom. 7th
G7 (G-B-D-F)	F (F-A-C)	G9/11 (G-B-D-F-A-C)	b7 for dom. 7th
G7 (G-B-D-F)	Fmaj7 (F-A-C-E)	G9/11/13 (G-B-D-F-A-C- E)	bmaj7 for dom. 7th
G7 (G-B-D-F)	Bm7b5 (B-D-F-A)	G9 (G-B-D-F-A)	3m7b5 for dom. 7th

Chromatic Arpeggio Substitution
For the 57 (dominant seventh) Chord

Substitutions can be Chromatic which means outside the key. Chromatic alterations are a mainstay in Jazz-many would say chromaticism is the basic language of Jazz. Chromaticism can occur with any chord but the unresolved or transitional V7 (i.e. G7) is the most likely (and best) chord for chromatic alterations-and this lesson deals with the V7 (i.e. G7).

 Some monster jazz guitarist such as Wes Montgomery,Joe Pass, along with many others, simplified their approach to chromaticism by realizing you can only alter the 5th and 9th of a dominant seventh chord (in any combination and order):

You can sharp or flat the 5th and 9th interval (i.e. b5, #5, b9, #9)

These substitutions create tension and dissonance but are very common in Jazz. As the great Pat Martino said about dissonance (I'll paraphrase) "The more dissonance you hear, the more you appreciate and enjoy it."

With this tension you will have to be a little more judicious in your use of these arpeggios. And since they are tension arpeggios they beg for resolution to the I chord (or a note inside the original chord)-and it is important to practice resolving these arps to any of the 1 chord substitution arpeggios (see above).

The best opportunity for adding tension in the V7 to I progression occurs with the (transitional) V7 chord (i.e. G7). Here is a list of chromatic arpeggio possibilities for the dominant seventh chord. This example uses G7 but the principles and relationships can and should be transposed to all keys. All these arpeggios are chromatic and can be used (judiciously) when the written chord is Dominant Seventh.

Original Chord	Substitution Arpeggio	Sounds Like	Substitution Rule
G7 (G-B-D-F)	Abmaj7 (Ab-C-Eb-G)	G11b9#5 (G-B-D#-F-Ab-C)	b9maj7 for dom. 7th
G7 (G-B-D-F)	Abm7 (Ab-B-Eb-Gb)	G7b9#5 (G-B-D#-F-Ab)	b9m7 for dom. 7th
G7 (G-B-D-F)	Abdim7* (Ab-B-D-F) *same as Bdim7/Ddim7/Fdim7	G7b9 (G-B-D-F-Ab)	b9dim7 for dom. 7th
G7 (G-B-D-F)	Abm/maj7 (Ab-B-D-G)	G7b9#5 (G-B-D#-F-Ab)	b9m/maj7 dom. 7th
G7 (G-B-D-F)	Fm7 (F-Ab-C-Eb)	G11b9#5 (G-B-D#-F-Ab-C)	b7m7 for dom. 7th
G7 (G-B-D-F)	Dm/ma7 (D-F-A-Db)	G9b5 (G-B-D-F-A-Db)	5m/maj7 for dom. 7th