# 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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86 views

### Arbitrage argument and Market Quotes [closed]

Good day, I wanted to ask for help with a question from one of my exercise sheets. For a share S the market quotes a given strike K in both european and american styles. Use an arbitrage ...
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### What is arbitraging without moving assets called?

I am currently trying to arbitrage across two markets A and B. My trading strategy is as follows: if the price between A and B differs by more than X%, then go long on the lower priced market, and ...
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### Best strategy to maximize Profit if no transaction cost?

I was recently in a competition which simulated real time currency trading. Teams were supposed to build bots that could request current prices of currencies, buy, or sell currencies using HTTP ...
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### How does volatility affect price arbitrage?

Suppose I'm running automated classic price arbitrage on 3 currencies (let's ignore the unfeasibility of this in our day and age). We have currency pairs Gold/Silver, Silver/Bronze, and Gold/Bronze. ...
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### How would you arbitrage this?

Assume it to be true that $dS = S\mu dt + \sigma(t)S dW$ where $\sigma$(t) is known. Consider a call option with expiry $T$, currently $t = 0$. For all $t \in [0,T]$, $\sigma(t) < \sigma_{impv}$ ...
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### Fair price and no arbitrage

The market is arbitrage-free iff there exists an equivalent martingale measure for the discounted price process of the stock. So in a world with a finite amount of possible outcomes $\Omega$ that ...
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### Different definitions of arbitrage

Consider the following setup: Let $S=\left(S_1,\ldots,S_n\right)$ be a $n$-dimensional price process and denote by $V$ its value process defined by $V_t=\phi_t\dot\ S_t$ for $t=0,\ldots,T$. In "...
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### Arbitrage and completeness in multiperiod model?

Given a 2-period market with above stock price process along with a riskfree stock with a return of 5%, how do I determine whether the market is arbitrage-free and complete when I only have knowledge ...
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### Arbitrage opportunity in discrete time

Say we have the following binary option $B$ on asset $S$ with strike K and expiration time T, assume also that the following relation holds at time $0$: $B > N*C(K,T)-N*C(K+1/N,T)$ Where $N$ is ...
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### FX Statistical Arbitrage Strategy [closed]

I have had experience creating stat arb strategies for equities and etfs, but haven't dabbled much into FX trading. I was wondering if anyone knew any resources online they would suggest, or could ...
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### How do most arbitrage opportunities account for unknown volume at a ticker price?

So, from a conceptual level, arbitrage seems quite forward... buy at one place at one price, and sell somewhere at a higher price. However, after doing some initial digging it appears to be not quite ...
358 views

### Latency Arbitrage in forex [closed]

(I've been downgraded on this question, and it's because most people don't understand what I mean. If you ever did hft arb, you will understand what I mean. If not, please do not answer) Everybody ...
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### HJM model, existence of arbitrage:

The Setup: Suppose I know the yield curve of a Bond satisfies: f (0, t) = 0.04 for t ≥ 0 and f (ω, 1, t) = 0.06, t ≥ 1, ω = ω 1 , 0.02, t ≥ 1, ω = ω 2 , where Ω = {ω 1 , ω 2 } with P[ω i ] > 0, i = 1,...
633 views

### Triangular Arbitrage with CFD

I cannot understand how the triangular arbitrage fits with CFD. Assuming there is an arbitrage opportunity: EUR/USD < USD/GBP * GBP/EUR If I do this strategy: 1 Long on EUR/USD at Ask price 1 ...
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### Calculating PnL from log prices

I'm backtesting a statistical arbitrage strategy. To calculate the PnL I simply use $Y(t)-Y(t+n)$ for the profit on the first leg and $\beta*X(t) - \beta*X(t+n)$ for the profit on the second leg, ...
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### Example code for "Gauge Invariance, Geometry and Arbitrage" paper

This paper describes an algorithm for computing arbitrage opportunites using a gauge connetion. Has anyone written a python program or C++ or C# program that shows how to follow the steps outlines in ...
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### Binomial model arbitrage

I've recently started studying math finance from Shreve's Stochastic calculus text. In the binomial model, there is no arbitrage $\iff d<1+r<u$. To show that no arbitrage implies $1+r<u$, ...
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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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### How do you hedge your inventory when doing arbitrage?

Say I want to do arbitrage between Exchange A and Exchange B on USD/AAPL. This requires that I hold equal parts USD and AAPL. I don't want exposure to the movement in AAPL. How do I hedge my AAPL ...
175 views

### No-arbitrage arguments: how do additional fees affect futures on an index?

I am considering a fund that replicates the returns of an index minus a fee, using the following case-study my lecturer used regarding SPY: In practice, futures and forwards can be written on assets ...
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### 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 ...
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### What do I call the combination of two or more prices when doing arbitrage?

Suppose that I’m doing forex arbitrage between multiple currencies. A possible arbitrage strategy is to combine the currency prices in pairs and then evaluate if there is a chance to make a profit. ...
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### Short sale and zero investmest strategy

Suppose I want to build a pairs trading strategy. Theory says that we can create a zero-investment portfolio by going long stock A and short-selling stock B, given a certain hedge ratio. My question ...
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### FX forward rates

FX forward rate should reflect the difference in the interate in the two currencies. At the moment GBP USD is trading near 1.29. The 5 year yield for US treasuries is about 1.87% and the UK 5 year ...
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### Arbitrage free smoothing of implied volatility surface, by Fengler

I'm reading this paper link and have came across the below statement. Can someone shed some light on it. "The approach we propose here builds on smoothing rather than interpolation. Therefore, the ...
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### Triangular arbitrage formula error

I am struggling with a formula for calculating the above. I have been using the following example: https://www.youtube.com/watch?v=lKu2LAgEcpU ...
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### Does presence of arbitrage necessarily make all derivatives have zero value?

Spin-off from: Pricing when arbitrage is possible through Negative Probabilities or something else I mean in a theoretical sense: If we have a particular market model with some fancy assumptions such ...
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### When are parameters calibrated using one option type applicable to price other option types on the same underlying?

I am coding up some basic models to show prospective employers, but I am forced to guess "what is done in practice" since I don't yet work in the industry. I am implementing various ...
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### Arbitrage in a Single Index Model

Simple question really, but I'm very confused by the starting point. Let's assume that we have a portfolio whose excess returns can be described by the following equation from the single index model: ...
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### Solving for r in the Black Scholes equation

Could you please correct which parts of my reasoning are wrong? Let's suppose that I know for sure that my estimate for a stock volatility is right (I have a crystal ball) and that it will be for ...
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### Calculate price of index from underlyings (weightings included)?

I have a day's worth of LSE data (FTSE100 companies) and I also have their weightings for the FTSE100. Ignoring the net present value of money, how do I calculate the current value of the FTSE? I ...
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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 ...