# 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.

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### 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 ...
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### 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 ...
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### 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 ...
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### 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 ? ...
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### 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 ...
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### 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 $N$ ...
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### 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 ...
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### 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 ...
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Given, a numéraire $(N(t))_{0\leq t \leq T}$ and an index $(X(t))_{0\leq t\leq T}$ that is a $\mathbb Q^{N}$-martingale, we consider the natural payoff $V_{N}(T)$, where it pays $$V_{N}(T):=X(T)N(T) \... -1 votes 1 answer 155 views ### How to exactly calculate lag between 2 exchanges Let's assume that there are two exchanges. One exchange is slow for various reasons.(for eg it is an open outcry versus electronic exchange) Even when there is no lag the prices will not match exactly ... 0 votes 1 answer 102 views ### Why would valuation for a swap be the same on the backward and forward rate but not a caplet Consider for time discretization 0 = T_{0} < T_{1} <... < S < T < T_{n}, and the corresponding forward rates and backward rate: \text{Forward rate: }L(S,T;t) \text{Backward Rate: }... 7 votes 0 answers 134 views ### Implied vol bounded if and only if instantaneous vol bounded I'd like to show that in diffusion models IV is bounded iff instantaneous vol is bounded if there is to be no arbitrage. So, assume a model under the pricing measure of the form$$ dS_u = \sigma_u S_u ... 1 vote
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### Triangular Arbitrage In FX Volatility

If I know the price of $GBPUSD$ and $EURUSD$, I can retrive the $EURGBP$ price simple by $EURGBP = \frac{GBPUSD}{EURUSD}$. Is there something equivalent to FX Volatility? Knowing the $\sigma_{GBPUSD}$,...
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### Is it true that interest rates options with different maturities are free of calendar arbitrage because of the different underlying rates dynamics?

The title says it all - is it true that European style interest rates options (lets say on LIBOR 3M for the sake of simplicity) with different maturities are free of calendar arbitrage because ...