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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 MatchesConversion arbitrageConversion arbitrageThe simultaneous purchase of a stock, the purchase of a put, and the sale of a call, creating a riskless transaction. ArbitrageurArbitrageurOne who profits from the differences in price when the same, or extremely similar, security, currency, or commodity is traded on two or more markets. The Arbitrageur profits by simultaneously purchasing and selling these securities to take advantage of pricing differentials (spreads) created by market conditions. See: Risk arbitrage, convertible arbitrage, index arbitrage, and international arbitrage. 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. Triangular arbitrageTriangular arbitrageArbitrage among three currencies. For example (letting x/y be the currency x per unit of currency y exchange rate), if $/¥ > ($/£)(£/¥), then an arbitrager can make a profit buying £ with $; buying ¥ with those £; and then selling those ¥ for $. Arbitrage free option pricing modelsArbitrage free option pricing modelsYield curve option-pricing models. Further SuggestionsDiscount ArbitrageRisk controlled arbitrage International arbitrage Convertible Arbitrage Riskless arbitrage Covered interest arbitrage Arbitrage bonds Covered interest arbitrage Locational arbitrage One-way arbitrage Merger Arbitrage Currency arbitrage Triangular arbitrage arbitrageur Reversal Arbitrage Arbitrage Trading Program (ATP) Tax arbitrage Index arbitrage Structured arbitrage transaction Special arbitrage account |
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