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Arbitrageurs

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Definition of Arbitrageurs

Arbitrageurs Image 1

Arbitrageurs

People who search for and exploit arbitrage opportunities.



Related Terms:

Arbitrage

The simultaneous buying and selling of a security at two different prices in two different markets,
resulting in profits without risk. Perfectly efficient markets present no arbitrage opportunities. Perfectly
efficient markets seldom exist.


Arbitrage

The purchase of securities on one market for immediate resale on
another market in order to profit from a price or currency discrepancy.


Arbitrage

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
Stephen Ross and based purely on arbitrage arguments.



Covered interest arbitrage

A portfolio manager invests dollars in an instrument denominated in a foreign
currency and hedges his resulting foreign exchange risk by selling the proceeds of the investment forward for
dollars.


Currency arbitrage

Taking advantage of divergences in exchange rates in different money markets by
buying a currency in one market and selling it in another market.


Arbitrageurs Image 1

Direct search market

Buyers and sellers seek each other directly and transact directly.


Future investment opportunities

The options to identify additional, more valuable investment opportunities
in the future that result from a current opportunity or operation.


Index arbitrage

An investment/trading strategy that exploits divergences between actual and theoretical
futures prices.


Net present value of growth opportunities

A model valuing a firm in which net present value of new
investment opportunities is explicitly examined.


Present value of growth opportunities (NPV)

Net present value of investments the firm is expected to make
in the future.


present value of growth opportunities (PVGO)

Net present value of a firm’s future investments.


Purchased In-Process Research and Development

Unfinished research and development that is acquired from another firm.


Research and Development Incentives

Government programs to promote research and development.


Risk arbitrage

Speculation on perceived mispriced securities, usually in connection with merger and
acquisition deals. Mike Donatelli, John Demasi, Frank Cohane, and Scott Lewis are all hardcore arbs. They
had a huge BT/MCI position in the summer of 1997, and came out smelling like roses.


Arbitrageurs Image 2

Risk controlled arbitrage

A self-funding, self-hedged series of transactions that generally utilize mortgage
securities as the primary assets.


Riskless arbitrage

The simultaneous purchase and sale of the same asset to yield a profit.



Roth IRA. An IRA account whose earnings are not taxable at all under certain

circumstances.


Search costs

Costs associated with locating a counterparty to a trade, including explicit costs (such as
advertising) and implicit costs (such as the value of time). Related:information costs.


Structured arbitrage transaction

A self-funding, self-hedged series of transactions that usually utilize
mortgage securities as the primary assets.


Triangular arbitrage

Striking offsetting deals among three markets simultaneously to obtain an arbitrage profit.


Whole Life

Component that provides life coverage during the insured's life.


Whole life insurance

A contract with both insurance and investment components: (1) It pays off a stated
amount upon the death of the insured, and (2) it accumulates a cash value that the policyholder can redeem or
borrow against.


Wholesale mortgage banking

The purchasing of loans originated by others, with the servicing rights
released to the buyer.



 

 

 

 

 

 

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