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# 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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### How to perform volatility arbitrage between two instruments with different prices but the same realized volatility

Suppose We have two assets $S_1$ and $S_2$. They have different price, but share the same realized vol. They have corresponding options $O_1$ and $O_2$. When the ATM IV of $O_1$ and $O_2$ differ too ...
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### Why does the lower arbitrage boundary of a European call on stock rise with time if F > S but fall if F < S?

I am reading "Option Volatility & Pricing", 2nd edition, by S. Natenberg. On page 297, he explains the lower arbitrage boundary of European options. I don't understand the logic for what ...
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### Forward price arbitrage

To price a forward on a stock we usually use arbitrage to find that the price of the forward is the price of the stock compounded by the risk free rate. I don't have the data to try things, so was ...
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### Arbitrage arguments for a commodity forward on investment assets

I am trying to understand the arbitrage arguments used for commodity forwards on investment assets. The theoretical price is given by $F_0 = (S_0 + U)e^{rT}$, where $U$ is the present value of all the ...
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### No Arbitrage iff no generalized Arbitrage

Let’s consider a market in finite discrete time with trading dates $0,1,\dots,T$ probability space $(\Omega, \mathcal{F}, \mathbb{P})$, filtration $\{\mathcal{F_t}\}_{t \in \{0,1, \dots, T\}}$, $N$ ...
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### Is my spread calculation correct?

I have automated Pair trading strategies running on both CME Futures and cryptocurrency perpetual pairs. I can chose between different spread calculation type and I noticed that the one I thought was ...
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### Arbitrage between one touch option and vanilla option

I recently came across this question, which is if you have a one touch option which the market has priced in X% of touching the barrier, and a vanilla call option on the same underlying and maturity ...
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### Application of Reciprocal Currency Rates and Triangular Arbitrage in FX Trading

After nearly a decade as a software engineer in finance, I find myself grappling with a question about FX trading that I've always hesitated to ask, particularly concerning the calculation of ...
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### 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 ...
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### 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 ...
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### 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 ...
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### 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 ...
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### 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....
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### 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 ...
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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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### 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?
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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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