# 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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### Rates arbitrage - practical trade example, is it actually risk free or can it burn?

The trade: Imagine a bank balance sheet as follows: One liability: GBP 100m deposit fixed term 6 month One asset: JPY 153m government bond maturing in 1 year (£100m equivalent, spot rate 153) ...
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### Simple hedging technique comparison question: forward market vs money market

I am trying to do some self studying and came across this question. I am not sure how I would analyze these hedging strategies to figure out which is better. Could you give me any help on how I could ...
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### Simple cross-rate table question

I am trying to self-study and came across this question, I am not sure how to answer this. I think I should transform all of the product's quoted prices to USD then compare them, is that correct? The ...
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### Simple three-pair triangulation question

I have a question I came across whilst self-studying and I need to use cross-currency triangulation. I am not too sure how to apply the cross-rate formula, and was hoping someone could show me how to ...
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### Is it fair in an introductory stochastic calculus/derivatives pricing class to ask for the price when absence of arbitrage is violated? [closed]

Re close votes: I believe this is a fair kind of opinion-based question because it's like those ethics questions in academia se or workplace se or because it's pedagogical. Context: I'm actually ...
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### How to price a set of cashflows from which the buyer can choose one?

Lets consider an arbitrage free and complete Model.Let also focus the analysis on the discrete time setting.Assume you have a finite set of random Cashflows $\mathcal{A}$. That means all elements of ...
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### Model for allocating capital between statistical arbitrage opportunities?

Dear users of quantstackexchange, I am currently creating a model with my team to look for the best (the highest returns) statistical arbitrage opportunity. This model will scan a significant amount ...
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### Can we observe smile arbitrage from the implied and local volatility?

Here are graphs of implied volatility and local volatility. Our prof mentioned that we can observe that the short end low strike region has some smile arbitrage. I would like to know how? Thanks
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### Does CRR Model lose completeness if we add another instrument?

Consider the multiperiod binomial/CRR model with one risky asset $S^{1}$ and a numeraire $S^{0}$. By seeing that the equivalent martingale measure is uniquely determined, we obtain that the market is ...
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### Clean noisy data from arbitrage

My problem is that I have a surface of implied black volatilites that is supposed to represent market data. However, the surface contains some slight arbitrage. More precisely, the graph contains ...
689 views

### How to prove no-arbitrage when a long butterfly is strictly positive?

I want to prove why there are no arbitrage opportunities when a long butterfly is strictly positive. I know there is a similar topic out there, but it seems it doesn't solve my question: Prove that ...
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### Is there a forward contract the underlying of which is another forward contract?

Is there a forward contract on a forward contract? Let us take a simple example: Persons $A$ and $B$ agree that $A$ sells $B$ some asset tomorrow at the fixed price $K_1$. This is a normal forward ...
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### What is the interpretation if the real world measure $\mathbb P$ is equal to the martingale measure $\mathbb Q$

Out of interest, is there anything noteworthy about a market when its real world measure $\mathbb P$ is actually also its martingale measure. In other words the real world measure $\mathbb P$ is equal ...
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### Why did investors believe that Volkswagen's preference and ordinary shares would converge in price?

The second para. below confirms that "Porsche's takeover demand would target the latter [ordinaries] rather than the former [preference]." Then why did investors like Albert Bridge Capital &...
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### ETF Market Making - Locking profits via hedging

I am interested in deeply understanding the way ETF market makers operate to profit. I already know that market makers profit from buying at the bid price and selling at the ask price, and I am also ...
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### Options Arbitrage

I have a basic question regarding the BSM formula, would be thankful for any assistance. As far as I understand $N(d2)$ and $N(-d2)$ stand for the probability of a Call and Put respectively being ...
We know that by the law of one price: in a one-period model $(\overline{\pi},\overline{S})$ for an arbitrage-free market model it follows that for two strategies $\overline{\rho}$ and \$\overline{\xi}\...