Questions tagged [arbitrage]
The simultaneous buying and selling of securities, currencies, or commodities in different markets in order to take advantage of differing prices for the same asset.
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How would one arbitrage a mispricing in interest rates and forex rates?
If you have a Japanese bond with a return of 2%, and an American bond paying 5%, but both current and forward exchange rates are 100 yen to 1 usd, how would one take advantage of this opportunity to ...
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Is dual pricing, arbitrage?
It was written in the current opener of Arbitrage in Wikipedia:
In economics and finance, arbitrage is the practice of taking advantage of a difference in prices in two or more markets;
To me, dual ...
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$E[F_T] = F_0$ implies $p = \frac{1-d}{u-d}$? or is implied by?
From Ch 12 in Hull's OFOD, we compute the risk-neutral probabilities for a futures contract:
Later in Ch 17, futures options are valued, and we have the same result:
In relation to Chapter 16 and 17,...
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Arbitrage free implies complete market in general binomial model?
Edit: Can complete hold even if $d < u \le 1+R$ or $1+R \le d < u$ ?
In Tomas Björk's Arbitrage Theory in Continuous Time, there exists this proposition
It seems that to show that the model is ...
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No arbitrage arguments on production machine in a neoclassical model
I am reading a paper (Manuelli & Seshadri 2014) that use a neoclassical model to model technology diffusion. I cannot understand the arbitrage condition that are used to calculate the rent price ...
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Are financial markets "unique" for each "currency pair", or are they simply "translated"?
This is something I've been long wondering about.
Let's say that I have statistics showing the daily closing Bitcoin price in USD since early 2009. Great. Now, if I wanted to get the daily closing ...
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Who is losing in an arbitrage?
When some entity takes advantage of an arbitrage opportunity, who is losing money? For example, when there are price differences across cryptocurrency exchanges and someone exploits an arbitrage ...
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Microeconomic rationale for UIP (uncovered interest rate parity)
The key idea behind UIP is that as for all common financial instruments, the "law of no free lunch" should also hold for currencies. However it differs from traditional replication-based no-...
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Need help with Wakker (2010) on arbitrage
In Prospect Theory (2010; Cambridge UP), Peter P. Wakker has an exercise assignment 3.3.6 without solution in the book and I'm really unsure about this one. The exercise states on pages 76-77:
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Are no arbitrage models and equilibrium models equivalent?
This YouTube video from WHU (starting from 3:50) claims that no-arbitrage models (such as Black-Scholes and HJM) are equivalent to equilibrium models (such as CAPM or C-CAPM).
He uses the Euler ...
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Why would option chains' IV differ, for the same stock and expiration?
I believe that the right-hand side refers to options sold before CHK split its stock on Apr 15 2020 1 for 200. 1. But why do the IV differ so much, e.g. at the strike price of 3?
Why hasn't this ...
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Properties of Financial Markets in Real Life
When studying financial economics, three concepts appear everywhere
Equilibria (investors maximise utility, markets clear and aggregated demand equals aggregated supply)
Completeness (there are ...
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How do takeover deals create arbitrage opportunities that involve necessarily selling short the acquirer’s stock?
Yes, you can get a juicy yield from a pot ETF. But here’s the catch - The Globe and Mail
Takeover deals create arbitrage opportunities that involve selling short the acquirer’s stock [I emboldened.]...
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What prevents a government from issuing debt to finance riskier investments?
Germany has a 10Y bond yield of -0.336%. Meanwhile, Brazil has a 10Y bond yield of 6.415%.
Why doesn't the German government issue bonds in order to buy Brazilian bonds? It seems a no-brainer win. ...
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What happens when a subsidiary distributes its shares to its parent company?
After a subsidiary company spins off from its parent and becomes public, what happens when the subsidiary distributes its shares to the parent firm's shareholders at some later time?
What I'm ...
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How does Egypt prevent people from arbitraging their currency?
Apparently Egypt uses a fixed exchange rate so there is a substantial difference between the government rate for the Egyptian pound and the price on the street. What prevents someone from just buying ...
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Currency triplets - arbitrage opportunity?
I have three currency pairs - USDEUR - 0.88, USDINR - 67.13 and EURINR - 75.88 , so simple math tells me that EURINR should be USDINR/USDEUR = 76.28 ...this is a fairly significant deviation from an ...
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What's wrong with have a 'one second tick' on stock market trades, to prevent high frequency trading? [duplicate]
Part of how high frequency trading works, is by taking advantage of millisecond advantages over other traders in communicating with the stock exchange.
To gain these advantages, high frequency ...
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Fundamental Theorem of Asset Pricing (Linear Algebra)
I saw this question in a textbook that I was recently reading and don't really know how to aprpoach this problem.
Let $H$ be a finite dimensional vector space with inner product ($\cdotp$, $\cdotp$)....
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Pricing a European call option while absence of arbitrage is violated
Assume that we have a general one-period market model consisting of d+1 assets and N states.
Using a replicating portfolio $\phi$, determine $\Pi(0;X)$, the price of a European call option, with ...
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Is scalping tickets harmful?
IMHO, scalping tickets is no different from legitimate arbitrage unless manipulative.
Iirc, arbitrage increases surplus and hindering scalping is setting a price ceiling which leads to deadweight ...
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