An arbitrage opportunity exists when a combination of two securities will produce a certain payoff in the future that produces a return that is greater than the risk-free rate of interest. Borrowing at the riskless rate to purchase the position will produce a certain future amount greater than ...
Explain why the no arbitrage condition must exist for a call. In other words, explain what it means for a call to be over-priced or under-priced relative to the BOPM. Explain why there is an arbitrage opportunity if the implied Black (flat) volatility of a cap is differe...
One of the assumptions of the arbitrage pricing theory (APT) is that there are no arbitrage opportunities available. An arbitrage opportunity is: A. a factor portfolio with a positive expected risk premium.B. an investment that has an expected positive net cash flow but requires no initial...
If the futures price is less than the spotprice plus the cost of carrying the goods to the futures delivery date, then an arbitrage opportunity exists. A trader would be able to sell the asset short, use the proceeds to lend at the prevailing interest rate, and then buy the asset for f...
Explain why there is an arbitrage opportunity if the implied Black (flat) volatility of a cap is different from that of a floor. Explain the difference between market value of equity and enterprise value. Explain why a firm is exposed to an adde...
[1.5 Marks]. If there is any arbitrage opportunity available between the implied forward rates estimated in Table 4 and the actual forward rates listed in Table 5, how much profit can you generate for the company as a price taker with 50,000,000 ...
the price of the futures contract at expiry is nearly the same as the cash spot price. The fact that the futures price tends toward the cash price into the expiration or delivery date is known as convergence. If prices are notably different, there is anarbitrageopportunity between the futures...
Given the tight spreads in the forex market, traders need to factor in these costs to accurately assess the profitability of an arbitrage opportunity. Arbitrage in Stock and Commodity Markets Arbitrage strategies are not limited to forex and cryptocurrencies. They also play a significant role in ...
Equilibrium: Eventually, the prices on both exchanges should converge, eliminating the arbitrage opportunity. Repeat: You continuously monitor for new price discrepancies across different exchanges or related markets. In practice, these opportunities are often much smaller and more complex, involving factors...
Wonder, Nicholas X./Paul Fieten/Lutz Kruschwitz/Jorg Laitenberger/Andreas Loffler/Joseph Tham/Ignacio Velez-Pareja (2003), Comment on 'The Value of Tax Shields is NOT Equal to the Present Value of Tax Shields', Including an Arbitrage Opportunity (Version vom December 22, 2003), SSRN Working...