Quantitative Finance Stack Exchange
Quantitative Finance Stack Exchange

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.

It is a particular trade methodology that allow investors to make profits by exploiting price differences of identical or similar financial instruments, on different markets or in different forms.

The existence of the possibility to make an arbitrage in finance is a proof of the existence of market inefficiencies, as suggested by the academic literature.

It also provides a mechanism to ensure prices do not deviate substantially from fair value for long periods of time.

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When to shut down a trend following strategy?

Suppose I have trend following strategy(on close to close data) that is not getting acceptable returns for some time. When should I start thinking about shutting it down?
Zarbouzou
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calculating arbitrage-free ranges based off outright, spread, and fly prices

This may be more applied math rather than finance focused, but I'm curious about using linear algebra techniques for generating possible arbitrage signals among outright instruments and spreads/flies based off these outrights (take for instance,…
hda2522
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USDCAD options vs CADUSD options arbitrage?

I think I've found an arbitrage opportunity. Right now, I can do this (first via CME, second via SAXO) : BUY CADUSD AMERICAN PUT 10200 STRIKE EXPIRING 16 MAR 2011 FOR 53 pips USD SELL USDCAD EUROPEAN CALL 0.9805 STRIKE EXPIRING 16 MAR 2011 FOR 68…
user59
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Where are creation unit baskets for ETFs published?

Where can the specification of a creation unit basket for an ETF be found? This information is needed for calculating the arbitrage possible between the ETF instrument itself and the creation unit basket constituent instruments. ETF marketing…
Make Mark
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Arbitraging OANDA continuous rollover vs other brokers' discrete rollover

Most brokers compute rollover once a day (2200 GMT), but OANDA calculates it continuously. I thought I'd cleverly found an arbitrage opportunity, but it turns out OANDA knows about this and advertises it. Quoting from…
user59
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Please explain this proof for me: (arbitrage and bounded set)

Consider this problem and subsequent proposition: Part of the proof of this proposition is given here: Could somebody please explain to me why the existence of the "associative ray" (which I have never heard of before) means there's an…
Moeo
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Two definitions of arbitrage in finite markets

I have read two definitions of the term an arbitrage opportunity in the literature*. Are they equivalent? Consider a single period market model over the measurable space $\Omega = \{\omega_1, \dots, \omega_M\}$, comprising $n + 1$ assets $S^0, S^1,…
Evan Aad
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Finding Arbitrage in two Puts

A European Put Option on a non-dividend paying stock with strike price 80 is currently priced at 8 and a put option on the same stock with strike price 90 is priced at 9. Is there an arbitrage opportunity existing in these two Options? I know we…
Jojo
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How often do ETF creation units baskets change?

Large institutions can swap baskets of underlying securities for ETF shares that can then be traded on an exchange as part of arbitrage between the price of the basket and the ETF share price. These baskets are called creation units. How often does…
Make Mark
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Arbitrage question

Consider a hypothetical Payment in Kind (PIK) bond of XYZ Corporation. The bond has 2 years to maturity, a face value of $1000, and has an annual coupon rate of 10%. Coupons are paid annually. XYZ has the right to pay the first coupon either in…
user3238961
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Why doesn't Black-Scholes assume the absence of statistical arbitrage?

Both Black-Scholes and binomial model assume that there's no risk-free arbitrage in the market. But that sounds like a very weak condition. If a trading scheme makes you gain 100 dollars with 99% probability and lose 5 dollars with 1% probability…
Vinayak Pathak
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Which is the correct definition of arbitrage?

Spin-off from here. In Tomas Bjork's Arbitrage Theory in Continuous Time (or here), $\exists$ 2 inconsistent definitions of arbitrage, which is correct? The first definition is for the single period Binomial model The second definition is for the…
BCLC
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Inconsistent Definition of Arbitrage in Bjork?

In Tomas Bjork's Arbitrage Theory in Continuous Time (or here), $\exists$ what seems to be 2 inconsistent definitions of arbitrage: The first definition is for the single period Binomial model The second definition is for the multi period Binomial…
BCLC
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Self-financing condition and funding, collateral and discounting

I'm reading "Illustrating a problem in the self-financing condition in two 2010-2011 papers on funding, collateral and discounting" paper. Is it just me or authors have a typo in their main warning (***): $\theta$'s seem to have the superscript $A$…
user973676
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Definition of Arbitrage

Definition. An arbitrage is a portfolio $H$ ∈ $R^n$ such that • $H⋅P_0≤0≤H⋅P_1$ almost surely, and • $P(H⋅P_0=0=H⋅P_1)<1$. where $P_0$ and $P_1$ ∈ $R^n$ represent the prices at time $t=0,1$ respectively. Now, my question is why do we need the first…
tergarg
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