# 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.

297 questions
Filter by
Sorted by
Tagged with
41 views

I've been reading Tomas Bjork's 'Arbitrage theory' and it says: To say that $d ≤ (1 + R) ≤u$ holds is equivalent to saying that $1 + R$ is a convex combination of u and d, i.e. $1 + R = q_u · u + q_d ... 0answers 37 views ### Carr and Madan algorithm to avoid arbitrage in oprion prices Hey in this text (https://arxiv.org/abs/1107.1834) in section 7 is described an algorithm which can delete options which generate an arbitrage.$C_ij$is call option price with strike$K_i$and ... 0answers 77 views ### Can arbitrage arguments be rearranged to avoid selling? (Hull, Chapter 5) Suppose forward contracts are traded on a consumption asset, so there aren't necessarily people ready and willing to sell the asset to jump on an arbitrage opportunity. Suppose the asset has no yield, ... 1answer 76 views ### Setting up arbitrage strategy in R I am trying to construct an arbitrage portfolio$\textbf{x}$such that$S^T\textbf{x} = 0$and$A\textbf{x} \geq \textbf{0}$, where$A$is the payoff matrix at$t=1$and$S$is the price at$t=0$. I ... 1answer 83 views ### Is there arbitrage in this market? I have an incomplete market (rows are states and columns are securities) and I need to determine if there is arbitrage, and if so, construct an arbitrage strategy. A is the payoff matrix (payoffs at ... 0answers 30 views ### Fitting a Spread into ARIMA AR(1) process I'm a newbie to econometrics. I've simply ran a regression and have coefficient values of the variables. I'm running a regression for a crypto data, and I've gotten the Spread of the variables. To ... 0answers 40 views ### Managing a portfolio of pair trades When arbitraging ETF holdings against the ETF, how does one manage the portfolio over time? Assume the strategy creates a long signal in pair A (stock X/ ETF) and a short signal in pair B ( stock Y / ... 1answer 62 views ### Pairs Trading: Normalized price series (co-integrated and correlated) always end up diverging Need some expert advice and suggestions: I am trying out pairs trading or statistical arbitrage (as traders say). But even if two price series are co-integrated (ADF test, Hurst exponent, Ornstein–... 1answer 66 views ### Options conversion/reversion arbitrage [closed] I'm trading bitcoin option and i'm trying to find arbitrage opportunity with a synthetic short/long and a long/short future position. The options are europeans style and settled in BTC. The contracts ... 0answers 68 views ### Linear factor representation Pricing kernel APT following Cochrane (2005) and other insights, we know that under Arbitrage Pricing Theory (Ross, 1976), if investors believe returns follow a linear multifactor structure of the form$x^i=r^f+\sum_{j=...
In Stochastic Volatility Modelling, Chapter 2, the author derived the Dupire equation $$\mathbb{E}[\sigma_T^2|S_T = K] = 2\frac{\frac{dC}{dT} + qC +(r-q)K\frac{dC}{dK}}{K^2 \frac{d^2C}{dK^2}}.$$ The ...