Skip to main content

Questions tagged [arbitrage]

The simultaneous purchase and sale of a financial security in order to profit from the difference in the security price during the trading activity.

Filter by
Sorted by
Tagged with
0 votes
0 answers
30 views

Now that Zipline is no longer being maintained. What back testing alternative would you recommend

I am building a self hosted stack so there has been a lot of trial and error in order to head off a headache or two I thought I would reach out for a group opinion. I am evaluating back testers and I ...
John Zirnkilton's user avatar
1 vote
0 answers
26 views

Showing a basic market admits no arbitrage

I'm learning the fundamentals of financial mathematics and came across the following problem I cannot solve Setting We work in $\left(\Omega, \mathcal{F},\left(\mathcal{F}_t\right)_{t=0}^1, \mathbb{P}\...
portero's user avatar
  • 11
0 votes
0 answers
26 views

Market Fragmentation

Consider a scenario where a security can be exchanged on two exchanges A and B. A trader who has access to A and B with same execution probabilities submit an order and split it between A and B ...
Ulysse Forest's user avatar
0 votes
0 answers
52 views

How to arbitrage options prices against prediction markets?

Suppose we have both put/call European-style options market and price prediction market on same underlying asset and same expiration date. How can one arbitrage one against the other? It seems that ...
uhbif19's user avatar
  • 101
-2 votes
0 answers
47 views

No arbitrage implies no good strategies?

I am trying to understand the concept of no arbitrage and its consequences. In my theory book we assume that inversors are small enough as to not have an impact on the price, etc, etc. Then, to my ...
R.V.N.'s user avatar
  • 97
0 votes
0 answers
55 views

Kurtosis and skewness trading resources

I am writing and dissertation about distribution arbitrage, which is basically kurtosis and skewness trading with the Risk neutral densities. I found a few research papers, but I am looking for some ...
Kid000's user avatar
  • 1
1 vote
0 answers
80 views

Arbitrage opportunities [closed]

I want to write a program that can find arbitrage in the curve of call prices for different strike K. So if I have a time serie with the price of call prices for different strikes and same time to ...
option_arbitrage's user avatar
1 vote
2 answers
141 views

Is this arbitrage? Infinite payoff / infinite loss (energy generation investment problem)

I'm a student using stochastic optimization in energy systems and I have a particular phenomena in an optimization problem that I think must occur in finance aswell, so I have been trying to find ...
waxcomb's user avatar
  • 11
0 votes
1 answer
154 views

filtering implied Vol surface for butterfly arbitrage

Suppose I have a volatility surface (matrix in time and strike) but it might have butterfly arbitrage in it. I want to remove nodes from the surface so that the Vol surface is butterfly arbitrage free....
Madhuresh's user avatar
0 votes
1 answer
194 views

Understanding completeness in this simple one-period exercise

Let's consider a one period model (t=0, 1) with one risk-free asset that yields r, and one risky asset. $S_t^j$ will be the value of the asset j=0,1 at time t=0,1, where j=0 is the risk-free asset and ...
Confused Quant's user avatar
0 votes
0 answers
65 views

Does arbitrage theory actually help in practice? If so, how?

Am wondering if arbitrage theory (the ones defined "classically" with stochastic processes, martingales, etc.) is actually helpful in practice for an actual trader beyond simply having an ...
lokett33's user avatar
3 votes
2 answers
530 views

Determining bet sizes given odds

Recently, I was asked the following question in an interview with a prop trading firm. You are given the opportunity to make money by betting a total of 100 bucks on the outcome of two simultaneous ...
quantrader23's user avatar
0 votes
1 answer
257 views

Statistical Arbitrage, Avellaneda & Lee - Estimation of the Residual Process

I am trying to calculate the trade signal outlined in Avellaneda & Lee paper "Statistical Arbitrage in the US Equities Market". They describe their approach in appendix. Here is my ...
arkon's user avatar
  • 1
0 votes
0 answers
59 views

FX FORWARDS Calculating funding cost and wether funding will be expensive or not

Lets say for example my TN for USDHKD point per day spot is -1.9467 and for 1mnth it is -1.4142 and the notional is 100m HKD dollars. Would you say more or less I would be flat in terms of funding ? ...
EarlyFx's user avatar
3 votes
0 answers
142 views

Arbitrage Opportunities in a Two-Zero Coupon Bond Market

Question: Suppose we are in a market where there are only two zero coupon bonds, both with a face value of 100: the first one with a maturity of one year and a price of 90, and the second one with a ...
Roberto Palermo's user avatar
0 votes
0 answers
65 views

Stock clustering for Statistical Arbitrage Trading

Has ML based stock-clustering been practically adapted by the industry in arbitrage trading strategies like pairs trading for forming pairs instead of other traditional techniques like cointegration?
Rohan Kuntoji's user avatar
0 votes
0 answers
74 views

Show discrete market is arbitrage free if and only if there exist no admissible arbitrage portfolios

Problem: Let S be a discrete market. Show S is arbitrage free if and only if there exist no admissible arbitrage portfolios. Definition of Discrete Market: Let $T$ be a positive real number and $N$ ...
neveryield's user avatar
0 votes
0 answers
110 views

Arbitrage with two puts and definition of convexity

This is concerning a common interview style question which has me confused; it has been discussed here: How to Take Advantage of Arbitrage Opportunity of Two Options and Arbitrage opportunity ...
Zonova's user avatar
  • 101
2 votes
0 answers
79 views

Filipovic: Where is it used that the world is deterministic

In this text (Damir Filipovic, Term-Structure Models, Springer, 2009) $P(t,T)$ denotes the price of a zero-coupon bond at time $t$ with maturity $T$. I cannot see where the proof uses the ...
Landscape's user avatar
  • 548
1 vote
0 answers
102 views

For which interest rates r is the model arbitrage-free?

Given $\Omega=\{\omega_1,...,\omega_4\}$ and a probability measure $\mathbb{P}$ on $(\Omega, \mathcal{P}(\Omega))$ where $\mathbb{P}(\{\omega_i\})>0$ for all $i$. Let, furthermore, $r\geq 0$, $S_0=...
Analysis's user avatar
  • 133
2 votes
0 answers
222 views

Counterexample for the Second fundamental theorem of Asset Pricing

so the The Second Fundamental Theorem of Asset Pricing says: An arbitrage-free market (S,B) consisting of a collection of stocks S and a risk-free bond B is complete if and only if there exists a ...
Analysis's user avatar
  • 133
0 votes
0 answers
27 views

Determine Dependent Variable Product

Let's say I have three products that are correlated (e.g. AAPL, MSFT, and AMZN). I would like to construct a spread between these products and trade the mean-reverting spread. Specifically, sell the ...
Vanillihoot's user avatar
0 votes
1 answer
52 views

is there some arbitrage relation one can show between a short term vanilla , a cliquet , and a long term vanilla?

suppose all 3 are calls and have same strike moneyness. The cliquet (V12) pays off S2-S1-K12 The short vanilla (V1) pays S1-K1 The long vanilla (V2) pays S2-K2. All are floored at zero ofcourse. K1,K2 ...
Randor's user avatar
  • 786
2 votes
0 answers
118 views

Question about proving the existence of an arbitrage opportunity

I am having a hard time understanding the reasoning behind a statement in the proof of the following lemma from page 14 (228) of the paper "Martingales and stochastic integrals in the theory of ...
Omer's user avatar
  • 121
0 votes
0 answers
47 views

How to price a derivative security in a trinomial asset pricing model

I am reading the first two chapters of Shreve's book "Stochastic Calculus for finance 1". The author discusses the question of how to price a derivative security assuming a binomial asset ...
Amr's user avatar
  • 101
3 votes
1 answer
362 views

Is negative forward variance an arbitrage?

I believe that having a negative forward variance on a ATMF implied volatility curve of a volatility surface could imply the existence of a static arbitrage (for example, a calendar arbitrage). ...
fwd_T's user avatar
  • 747
2 votes
1 answer
198 views

Check for arbitrage - European calls with same strike price, different duration and price

I tried a lot of different things to check for arbitrage on the following calls but didn't succeed. Let's suppose we have a stock that is currently valued at 40. The interest rate is 0.05 and the ...
LunaStorm's user avatar
2 votes
0 answers
125 views

SABR, Stochastic collocation and calendar arbitrage

Ok, this is a bit of a long read, so be warned.. I am currently learning about the so called "Stochastic collocation" technique which seem to have been quite popular during recent years for ...
Jesper Tidblom's user avatar
2 votes
0 answers
61 views

When the market is volatile, relatively fewer factors suffice for a productive stat -arb signal. Have you noticed it, and why would that be? [closed]

In volatile markets only a small number of factor are sufficient for factor based statistical arbitrage to work well. This is an empirical observation. Why would this be? Have others noticed it as ...
manav's user avatar
  • 121
2 votes
0 answers
212 views

Futures basis (Bond) optimal delivery

i have a confusion regarding how the basis converges in a couple of scenarios. Lets assume I am long UST CTD Basis Say the curve is upward sloping: optimally, i would choose to make delivery of the ...
user65739's user avatar
3 votes
0 answers
136 views

Joint SPX and VIX calibration - volatility surfaces construction

I am currently researching the joint calibration problem of SPX options and VIX options. A question that comes to mind is the construction of each assets respective volatility surface. In the articles ...
Sinbad The Sailor's user avatar
1 vote
1 answer
115 views

Basic question/clarification about the LOOP

This is a very basic question/comment regarding the way that the LOOP is stated in the book "Dan Stefanica - A Primer for the Mathematics of Financial Engineering". The proposition goes as ...
user_12345's user avatar
1 vote
0 answers
57 views

Forward price of dividend paying asset and IV skew asymptotics as $T\to\infty$

Assuming for simplicity deterministic interest rate and dividend yield, then the forward price of an asset is $$ F = Se^{(r-q)T} $$ where $T$ is maturity date. In studying IV skew asymptotics, the ...
Frido's user avatar
  • 1,854
-1 votes
1 answer
214 views

What is the arbitrage opportunity and strategy here? [closed]

Suppose that the current stock price is $€100$, the exercise price is $€100$, the annually compounded interest rate is 5 percent, the stock pays a $€1$ dividend in the next instant, and the quoted ...
Win_odd Dhamnekar's user avatar
1 vote
2 answers
446 views

Role of Intercept In OLS Beta Estimation

I am constructing a classic pairs trading strategy in which I use a linear estimator to model the spread of two assets opening a long-short market neutral position during times of divergence. I am ...
James VanLandingham's user avatar
2 votes
2 answers
700 views

W-shaped Event Vol and Butterfly Arbitrage

I came across the Vola Dynamics page about the W-shaped vol before an event: https://voladynamics.com/marketEquityUS_AMZN.html I'm a bit confused by "this term does not have any butterfly ...
Michael's user avatar
  • 291
0 votes
0 answers
264 views

Combining two orderbooks

Consider two different pairs of currencies traded in the same exchange. We will call these pairs A/B and A/C. Each market comes ...
apt45's user avatar
  • 213
2 votes
1 answer
118 views

Can I replicate an option with time to expiry $t$ by trading in another with expiry $T > t$?

Suppose there's a salesman who will always sell me an option expiring in two weeks. His options trade at a steep discount, but I can't directly arb it because the closest exchange-traded contract ...
actinidia's user avatar
  • 197
0 votes
2 answers
111 views

Are risk-free-rate bonds and cash fungible?

I had a thought experiment: suppose you wanted to borrow an equity security from me (perhaps to short sell it). I ask you for collateral and a borrow fee, and in exchange you get the stock. If you ...
actinidia's user avatar
  • 197
1 vote
2 answers
139 views

Bond forward arbitrage relationships

I am trying to see if the following statement is true or not and I would really appreciate your help. The statement is as follows: $\forall $ Tradable Asset $V(t)$, $$ E[\frac{P(t,T_{i})P(T_{i},T_{i+1}...
Xman's user avatar
  • 267
1 vote
0 answers
235 views

StatArb : Fourier transform to find the perfect factor?

We have a basic mean reverting strategy. Given a bench of assets, we are looking for the best linear combination of them such as the resulting normalized time series would be noisy at high frequencies ...
Jerem Lachkar's user avatar
4 votes
1 answer
311 views

Convergence of crypto perpetual futures

Perpetual contracts are supposed to track the spot prices through the funding mechanism. Typically, if the future has traded above the spot in the last averaging period used to compute the funding, ...
Marc P's user avatar
  • 41
2 votes
1 answer
345 views

Why is this inequality strict for arbitrage argument for European call?

in the notes about arbitrage arguments I am reading, I notice the statement We can also see that $$C^E_t>(S_t-K\mathrm{e}^{-r(T-t)})^+$$ Notice that the inequality holds STRICTLY! I don't ...
Ice Tea's user avatar
  • 185
1 vote
1 answer
180 views

How do I extract the arbitrage?

You are looking at a particular stock ticker and its options. You can go long or short on any quantity of the following instruments: Each unit of stock is priced at \$10. A call on the stock with ...
AzureOSK's user avatar
2 votes
2 answers
2k views

Understanding FX forward points and market usage

I've been trying to make sense of how the FX forward market works. Let's say today is June 13, 2022. And we have the next market info as seen in Bloomberg for the FX cross between USDMXN, assuming mid ...
Aldo Shumway's user avatar
1 vote
1 answer
87 views

ETF structure's effect on premium to NAV

The GBTC (Grayscale Bitcoin) ETF is known for historically having a premium to net asset value (NAV). This led crypto funds to buy bitcoin, deposit their bitcoin into the trust to obtain GBTC, then ...
Betterthan Kwora's user avatar
1 vote
0 answers
123 views

Deviation between spot price and implied spot price of S&P500 mini-futures

From Derivatives Markets (McDonald) it is stated that we may price a financial forward and, equivalently, get an implied spot price from a given futures price: $$ F_{0, T}=S_0e^{(r-\delta)T} \implies ...
Devtons's user avatar
  • 11
0 votes
0 answers
140 views

Strike arbitrage in discrete implied volatility grid

I need to test strike (butterfly) arbitrage on a discrete implied volatility grid. I know that the traditional procedure for continuous case is (for a given maturity T): See the Dupire formula in ...
Joanna's user avatar
  • 863
1 vote
2 answers
396 views

Calendar arbitrage in implied vol grid with discrete and proportional dividends

I have an implied vol discrete grid, obtained from market data. To obtain prices from these implied vols, a dividend model with discrete and proportional dividends is used. How can I verify if there ...
Joanna's user avatar
  • 863
1 vote
1 answer
250 views

Why do VIX spot and futures converge if there is no cash and carry arbitrage?

Since VIX spot is not tradable, why do the futures and spot converge @ expiration? By what mechanism does this occur if arbitrage is not one of them?
user61297's user avatar

1
2 3 4 5
9