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Arbitrage |
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ArbitrageA combination of transactions designed to profit from an existing discrepancy among prices, exchange rates, and/or interest rates on different markets without risk of these changing. Simplest is simultaneous purchase and sale of the same thing in different markets, but more complex forms include triangular arbitrage and covered interest arbitrage.ArbitrageThe simultaneous purchase and sale of two different, but closely related, securities to take advantage of a disparity in their prices. Alternatively, the purchase and sale of the same security in different markets.Originally, most arbitrage occurred in the currency markets: arbitrageurs would buy in one market and sell in another. Nowadays, the practice applies equally to commodities, futures and stocks. For instance, if a company is dual-listed on two stock exchanges, and the prices are at variance, an arbitrageur has an opportunity to buy in one market and sell in another before the disparity is closed.Similar MatchesTax arbitrageTax arbitrageTrading that takes advantage of a difference in tax rates or tax systems as the basis for profit. Conversion arbitrageConversion arbitrageThe simultaneous purchase of a stock, the purchase of a put, and the sale of a call, creating a riskless transaction. Currency arbitrageCurrency arbitrageTaking advantage of divergences in exchange rates in different money markets by buying a currency in one market and selling it in another market. Convertible ArbitrageConvertible ArbitrageIn the context of hedge funds, a style of management that involves the simultaneous purchase of a convertible bond and the short sale of shares of the underlying stock. Interest rate risk may or may not be hedged. Multiple ArbitrageMultiple ArbitrageIn the context of hedge funds, a style of management where by the fund employs more than one arbitrage strategy. Portfolio manager opportunistically allocates capital among the various strategies in order to create the best risk/reward profile for the overall fund. Common strategies include merger arbitrage, convertible arbitrage, fixed income arbitrage, long/short equities pairs trading, and volatility arbitrage. In the context of equity and private equity investment, this refers to an investment in a firm where by standard multiples (earnings/price, book/price) indicate the price is far cheaper than industry averages. Further SuggestionsLocational arbitrageArbitrage free option pricing models One-way arbitrage Triangular arbitrage Special arbitrage account Index arbitrage Riskless arbitrage Triangular arbitrage Discount Arbitrage Arbitrage Trading Program (ATP) Covered interest arbitrage Reversal Arbitrage Risk controlled arbitrage International arbitrage Arbitrage bonds Covered interest arbitrage Merger Arbitrage Structured arbitrage transaction Arbitrageur arbitrageur |
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