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Definition of Arbitrage
The purchase of securities on one market for immediate resale on
The simultaneous buying and selling of a security at two different prices in two different markets,
Transactions designed to make a sure profit from inconsistent prices.
Arbitrage-free option-pricing models
Yield curve option-pricing models.
Arbitrage Pricing Theory (APT)
An alternative model to the capital asset pricing model developed by
People who search for and exploit arbitrage opportunities.
Covered interest arbitrage
A portfolio manager invests dollars in an instrument denominated in a foreign
Taking advantage of divergences in exchange rates in different money markets by
An investment/trading strategy that exploits divergences between actual and theoretical
Speculation on perceived mispriced securities, usually in connection with merger and
Risk controlled arbitrage
A self-funding, self-hedged series of transactions that generally utilize mortgage
The simultaneous purchase and sale of the same asset to yield a profit.
Structured arbitrage transaction
A self-funding, self-hedged series of transactions that usually utilize
Striking offsetting deals among three markets simultaneously to obtain an arbitrage profit.
American Depositary Receipts (ADRs)
Certificates issued by a U.S. depositary bank, representing foreign
Black-Scholes option-pricing model
A model for pricing call options based on arbitrage arguments that uses
Lifting a leg
Closing out one side of a long-short arbitrage before the other is closed.
A special case of the arbitrage pricing theory that is derived from the one-factor model by
Perfect capital market
A market in which there are never any arbitrage opportunities.
Put-call parity relationship
The relationship between the price of a put and the price of a call on the same
Spot futures parity theorem
Describes the theoretically correct relationship between spot and futures prices.
Yield curve option-pricing models
Models that can incorporate different volatility assumptions along the
A portfolio of zero net value established by buying and shorting component
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