1410:(DLC) structure involves two companies incorporated in different countries contractually agreeing to operate their businesses as if they were a single enterprise, while retaining their separate legal identity and existing stock exchange listings. In integrated and efficient financial markets, stock prices of the twin pair should move in lockstep. In practice, DLC share prices exhibit large deviations from theoretical parity. Arbitrage positions in DLCs can be set up by obtaining a long position in the relatively underpriced part of the DLC and a short position in the relatively overpriced part. Such arbitrage strategies start paying off as soon as the relative prices of the two DLC stocks converge toward theoretical parity. However, since there is no identifiable date at which DLC prices will converge, arbitrage positions sometimes have to be kept open for considerable periods of time. In the meantime, the price gap might widen. In these situations, arbitrageurs may receive
973:, one trades a security that is clearly undervalued or overvalued, when it is seen that the wrong valuation is about to be corrected. The standard example is the stock of a company, undervalued in the stock market, which is about to be the object of a takeover bid; the price of the takeover will more truly reflect the value of the company, giving a large profit to those who bought at the current price, if the merger goes through as predicted. Traditionally, arbitrage transactions in the securities markets involve high speed, high volume, and low risk. At some moment a price difference exists, and the problem is to execute two or three balancing transactions while the difference persists (that is, before the other arbitrageurs act). When the transaction involves a delay of weeks or months, as above, it may entail considerable risk if borrowed money is used to magnify the reward through leverage. One way of reducing this risk is through the
887:. Assume that a car purchased in the United States is cheaper than the same car in Canada. Canadians would buy their cars across the border to exploit the arbitrage condition. At the same time, Americans would buy US cars, transport them across the border, then sell them in Canada. Canadians would have to buy American dollars to buy the cars and Americans would have to sell the Canadian dollars they received in exchange. Both actions would increase demand for US dollars and supply of Canadian dollars. As a result, there would be an appreciation of the US currency. This would make US cars more expensive and Canadian cars less so until their prices were similar. On a larger scale, international arbitrage opportunities in commodities, goods,
1425:(LTCM, see also the discussion below). Lowenstein (2000) describes that LTCM established an arbitrage position in Royal Dutch Shell in the summer of 1997, when Royal Dutch traded at an 8 to 10 percent premium. In total, $ 2.3 billion was invested, half of which was long in Shell and the other half was short in Royal Dutch (Lowenstein, p. 99). In the autumn of 1998, large defaults on Russian debt created significant losses for the hedge fund and LTCM had to unwind several positions. Lowenstein reports that the premium of Royal Dutch had increased to about 22 percent and LTCM had to close the position and incur a loss. According to Lowenstein (p. 234), LTCM lost $ 286 million in equity
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a longer period of time, two similar instruments—municipal bonds and interest rate swaps—will correlate with each other; they are both very high quality credits, have the same maturity and are denominated in the same currency. Credit risk and duration risk are largely eliminated in this strategy. However, basis risk arises from use of an imperfect hedge, which results in significant, but range-bound principal volatility. The end goal is to limit this principal volatility, eliminating its relevance over time as the high, consistent, tax-free cash flow accumulates. Since the inefficiency is related to government tax policy, and hence is structural in nature, it has not been arbitraged away.
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loan) to the IT services company to cover the acquisition cost of the IT installations. This can be at preferential rates, as the sole client using the IT installation is the bank. If the bank can generate 5% interest margin on the 400 million of new loans, the bank will increase interest revenues by 20 million. The IT services company is free to leverage their balance sheet as aggressively as they and their banker agree to. This is the reason behind the trend towards outsourcing in the financial sector. Without this money creation benefit, it is actually more expensive to outsource the IT operations as the outsourcing adds a layer of management and increases overhead.
1644:, investors began selling non-U.S. treasury debt and buying U.S. treasuries, which were considered a safe investment. As a result, the price on US treasuries began to increase and the return began decreasing because there were many buyers, and the return (yield) on other bonds began to increase because there were many sellers (i.e. the price of those bonds fell). This caused the difference between the prices of U.S. treasuries and other bonds to increase, rather than to decrease as LTCM was expecting. Eventually this caused LTCM to fold, and their creditors had to arrange a bail-out. More controversially, officials of the
1211:" investors seeking tax-exempt income) as well as the "crossover buying" arising from corporations' or individuals' changing income tax situations (i.e., insurers switching their munis for corporates after a large loss as they can capture a higher after-tax yield by offsetting the taxable corporate income with underwriting losses). There are additional inefficiencies arising from the highly fragmented nature of the municipal bond market which has two million outstanding issues and 50,000 issuers, in contrast to the Treasury market which has 400 issues and a single issuer.
1093:, this is the simplest form of arbitrage. In spatial arbitrage, an arbitrageur looks for price differences between geographically separate markets. For example, there may be a bond dealer in Virginia offering a bond at 100-12/23 and a dealer in Washington bidding 100-15/23 for the same bond. For whatever reason, the two dealers have not spotted the difference in the prices, but the arbitrageur does. The arbitrageur immediately buys the bond from the Virginia dealer and sells it to the Washington dealer.
1360:) and actually have the same value. In this case, there is a spread between the perceived value and real value, which can be extracted. Other ADR's that are not exchangeable often have much larger spreads. Since the ADR is trading at a value lower than what it is worth, one can purchase the ADR and expect to make money as its value converges on the original. However, there is a chance that the original stock will fall in value too, so by shorting it one can hedge that risk.
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expectations of how interest rates will move in the future. In arbitrage-free pricing of a bond, a yield curve of similar zero-coupon bonds with different maturities is created. If the curve were to be created with
Treasury securities of different maturities, they would be stripped of their coupon payments through bootstrapping. This is to transform the bonds into zero-coupon bonds. The yield of these zero-coupon bonds would then be plotted on a diagram with time on the
1535:'s 2012 four-part documentary, "Money, Power, and Wall Street", regulatory arbitrage, along with asymmetric bank lobbying in Washington and abroad, allowed investment banks in the pre- and post-2008 period to continue to skirt laws and engage in the risky proprietary trading of opaque derivatives, swaps, and other credit-based instruments invented to circumvent legal restrictions at the expense of clients, government, and publics.
934:– prices can get a small amount closer (but often no closer than 0), while they can get very far apart. The day-to-day risks are generally small because the transactions involve small differences in price, so an execution failure will generally cause a small loss (unless the trade is very big or the price moves rapidly). The rare case risks are extremely high because these small price differences are converted to large profits via
1203:, this hedge fund strategy involves one of two approaches. The term "arbitrage" is also used in the context of the Income Tax Regulations governing the investment of proceeds of municipal bonds; these regulations, aimed at the issuers or beneficiaries of tax-exempt municipal bonds, are different and, instead, attempt to remove the issuer's ability to arbitrage between the low tax-exempt rate and a taxable investment rate.
1024:: the risk that a counterparty fails to fulfill their side of a transaction. This is a serious problem if one has either a single trade or many related trades with a single counterparty, whose failure thus poses a threat, or in the event of a financial crisis when many counterparties fail. This hazard is serious because of the large quantities one must trade in order to make a profit on small price differences.
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counterparty risk, is characterized by the failure of the other participant in a substantial transaction, or a series of transactions, to fulfill their financial obligations. Liquidity risk, conversely, emerges when an entity is necessitated to allocate additional monetary resources as margin, but encounters a deficit in the required capital.
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considered a zero-coupon instrument that pays one payment upon maturity. The discount rates used should be the rates of multiple zero-coupon bonds with maturity dates the same as each cash flow and similar risk as the instrument being valued. By using multiple discount rates, the arbitrage-free price is the sum of the
1324:(to hedge the risk of credit deterioration). Eventually what he or she would be left with is something similar to a call option on the underlying stock, acquired at a very low price. He or she could then make money either selling some of the more expensive options that are openly traded in the market or
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Such services were previously offered in the United States by companies such as FuturePhone.com. These services would operate in rural telephone exchanges, primarily in small towns in the state of Iowa. In these areas, the local telephone carriers are allowed to charge a high "termination fee" to the
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In economics, regulatory arbitrage (sometimes, tax arbitrage) may refer to situations when a company can choose a nominal place of business with a regulatory, legal or tax regime with lower costs. This can occur particularly where the business transaction has no obvious physical location. In the case
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Some brokers in
Germany do not offer access to the U.S. exchanges. Hence if a German retail investor wants to buy Apple stock, he needs to buy it on the XETRA. The cross-border trader would sell the Apple shares on XETRA to the investor and buy the shares in the same second on NASDAQ. Afterwards, the
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The present-value approach assumes that the bond yield will stay the same until maturity. This is a simplified model because interest rates may fluctuate in the future, which in turn affects the yield on the bond. For this reason, the discount rate may differ for each cash flow. Each cash flow can be
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assisted in the negotiations that led to this bail-out, on the grounds that so many companies and deals were intertwined with LTCM that if LTCM actually failed, they would as well, causing a collapse in confidence in the economic system. Thus LTCM failed as a fixed income arbitrage fund, although it
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Telecom arbitrage companies allow phone users to make international calls for free through certain access numbers. Such services are offered in the United
Kingdom; the telecommunication arbitrage companies get paid an interconnect charge by the UK mobile networks and then buy international routes at
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Example: Suppose the bank sells its IT installations for US$ 40 million. With a reserve ratio of 10%, the bank can create US$ 400 million in additional loans (there is a time lag, and the bank has to expect to recover the loaned money back into its books). The bank can often lend (and securitize the
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The term "Regulatory
Arbitrage" was used for the first time in 2005 when it was applied by Scott V. Simpson, a partner at law firm Skadden, Arps, to refer to a new defence tactic in hostile mergers and acquisitions where differing takeover regimes in deals involving multi-jurisdictions are exploited
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allows participants to collect more after-tax income from the municipal bond portfolio than is spent on the interest rate swap; the carry is greater than the hedge expense. Positive, tax-free carry from muni arb can reach into the double digits. The bet in this municipal bond arbitrage is that, over
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Since the yield curve displays market expectations on how yields and interest rates may move, the arbitrage-free pricing approach is more realistic than using only one discount rate. Investors can use this approach to value bonds and find price mismatches, resulting in an arbitrage opportunity. If a
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at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit after transaction costs. For example, an arbitrage opportunity is present when there is the possibility to instantaneously buy something for a low price
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and buy
Italian bond futures. The concept was that because Italian bond futures had a less liquid market, in the short term Italian bond futures would have a higher return than U.S. bonds, but in the long term, the prices would converge. Because the difference was small, a large amount of money had
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Generally, managers seek relative value opportunities by being both long and short municipal bonds with a duration-neutral book. The relative value trades may be between different issuers, different bonds issued by the same entity, or capital structure trades referencing the same asset (in the case
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Grey market arbitrage is the sale of goods purchased through informal channels to earn the difference in price. Excessive gray market arbitrage will lead to arbitrage behaviors in formal channels, which will reduce returns due to factors such as price confusion, and may even cause prices to plummet
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may, for example, find that the price of wheat is lower in agricultural regions than in cities, purchase the good, and transport it to another region to sell at a higher price. This type of price arbitrage is the most common, but this simple example ignores the cost of transport, storage, risk, and
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Regulatory arbitrage can include restructuring a bank by outsourcing services such as IT. The outsourcing company takes over the installations, buying out the bank's assets and charges a periodic service fee back to the bank. This frees up cashflow usable for new lending by the bank. The bank will
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Arbitrage-free pricing for bonds is the method of valuing a coupon-bearing financial instrument by discounting its future cash flows by multiple discount rates. By doing so, a more accurate price can be obtained than if the price is calculated with a present-value pricing approach. Arbitrage-free
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Due to the
Affordable Care Act's expansion of Medicaid coverage, one form of Regulatory Arbitrage can now be found when businesses engage in "Medicaid Migration", a maneuver by which qualifying employees who would typically be enrolled in company health plans elect to enroll in Medicaid instead.
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Generally, it is impossible to close two or three transactions at the same instant; therefore, there is the possibility that when one part of the deal is closed, a quick shift in prices makes it impossible to close the other at a profitable price. However, this is not necessarily the case. Many
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If the outcome from the valuation were the reverse case, the opposite positions would be taken in the bonds. This arbitrage opportunity comes from the assumption that the prices of bonds with the same properties will converge upon maturity. This can be explained through market efficiency, which
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Competition in the marketplace can also create risks during arbitrage transactions. As an example, if one was trying to profit from a price discrepancy between IBM on the NYSE and IBM on the London Stock
Exchange, they may purchase a large number of shares on the NYSE and find that they cannot
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to avoid exposure to market risk, or the risk that prices may change in one market before both transactions are complete. In practical terms, this is generally possible only with securities and financial products that can be traded electronically, and even then, when each leg of the trade is
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For the purpose of valuing the price of a bond, its cash flows can each be thought of as packets of incremental cash flows with a large packet upon maturity, being the principal. Since the cash flows are dispersed throughout future periods, they must be discounted back to the present. In the
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the loan, removing the low-risk loan from its portfolio. On the other hand, if the real risk is higher than the regulatory risk then it is profitable to make that loan and hold on to it, provided it is priced appropriately. Regulatory arbitrage can result in parts of entire businesses being
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The principal risk, which is typically encountered on a routine basis, is classified as execution risk. This transpires when an aspect of the financial transaction does not materialize as anticipated. Infrequent, albeit critical, risks encompass counterparty and liquidity risks. The former,
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The idea of using multiple discount rates obtained from zero-coupon bonds and discounting a similar bond's cash flow to find its price is derived from the yield curve, which is a curve of the yields of the same bond with different maturities. This curve can be used to view trends in market
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by encouraging people to buy an item where the price is low and resell it where the price is high (as long as the buyers are not prohibited from reselling and the transaction costs of buying, holding, and reselling are small, relative to the difference in prices in the different markets).
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Usually, the market price of the target company is less than the price offered by the acquiring company. The spread between these two prices depends mainly on the probability and the timing of the takeover being completed as well as the prevailing level of interest rates.
910:, taxes, and other costs provide an impediment to this kind of arbitrage. Similarly, arbitrage affects the difference in interest rates paid on government bonds issued by the various countries, given the expected depreciation in the currencies relative to each other (see
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caller's carrier in order to fund the cost of providing service to the small and sparsely populated areas that they serve. However, FuturePhone (as well as other similar services) ceased operations upon legal challenges from AT&T and other service providers.
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Given the complexity of the calculations involved and the convoluted structure that a convertible bond can have, an arbitrageur often relies on sophisticated quantitative models in order to identify bonds that are trading cheap versus their theoretical value.
1230:. The arbitrage manifests itself in the form of a relatively cheap longer maturity municipal bond, which is a municipal bond that yields significantly more than 65% of a corresponding taxable corporate bond. The steeper slope of the municipal
1056:), the trader may run out of capital (if they run out of cash and cannot borrow more) and be forced to sell these assets at a loss even though the trades may be expected to ultimately make money. In effect, arbitrage traders synthesise a
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Lu, Y; Foropon, Cyril RH VIAFID ORCID Logo ; Wang, D; Xu, S ， Journal of
Enterprise Information Management; Bradford ，2020 ， Arbitrage in gray markets and its impact on supply chain decisions ， vol.34 , no.1, pp.382-8.
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Regulatory arbitrage "is an avoidance strategy of regulation that is exercised as a result of a regulatory inconsistency". In other words, where a regulated institution takes advantage of the difference between its real (or economic)
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trades, as they involve a short position. If the assets used are not identical (so a price divergence makes the trade temporarily lose money), or the margin treatment is not identical, and the trader is accordingly required to post
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in arbitrage, some minor (such as fluctuation of prices decreasing profit margins), some major (such as devaluation of a currency or derivative). In academic use, an arbitrage involves taking advantage of differences in price of a
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Another risk occurs if the items being bought and sold are not identical and the arbitrage is conducted under the assumption that the prices of the items are correlated or predictable; this is more narrowly referred to as a
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A Swiss watch sold by an approved dealer for £42,600 is an excellent example of a grey market product; customers can buy the identical watch for £27,227 on the Chrono24 website, which is an unlicensed 'grey market.'
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executed, the prices in the market may have moved. Missing one of the legs of the trade (and subsequently having to trade it soon after at a worse price) is called 'execution risk' or more specifically 'leg risk'.
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other factors. "True" arbitrage requires that there is no market risk involved. Where securities are traded on more than one exchange, arbitrage occurs by simultaneously buying in one and selling on the other.
1453:). Thus, if a publicly traded company specialises in the acquisition of privately held companies, from a per-share perspective there is a gain with every acquisition that falls within these guidelines. E.g.,
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downgrade) and its credit spread widens, the bond price tends to move lower, but, in many cases, the call option part of the convertible bond moves higher (since credit spread correlates with volatility).
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As an arbitrage consists of at least two trades, the metaphor is of putting on a pair of pants, one leg (trade) at a time; the risk that one trade (leg) fails to execute is therefore called 'leg risk'.
1067:"; these are precisely the times when it is hardest for leveraged investors to raise capital (due to overall capital constraints), and thus they will lack capital precisely when they need it most.
1356:) depending on where they are issued, are typically considered "foreign" and therefore trade at a lower value when first released. Many ADR's are exchangeable into the original security (known as
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These programs that have similar characteristics as insurance products to the employee, but have radically different cost structures, resulting in significant expense reductions for employers.
1414:, after which they would most likely be forced to liquidate part of the position at a highly unfavorable moment and suffer a loss. Arbitrage in DLCs may be profitable, but is also very risky.
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In the academic literature, the idea that seemingly very low-risk arbitrage trades might not be fully exploited because of these risk factors and other considerations is often referred to as
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To accomplish arbitrage, the grey market buys items through marketing channels that sell them without the permission of the product trademark owner and sells them in the legitimate market.
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is the time the portfolio ceases to be available on the market. This means that the value of the portfolio is never negative, and guaranteed to be positive at least once over its lifetime.
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The market prices for privately held companies are typically viewed from a return on investment perspective (such as 25%), whilst publicly held and or exchange listed companies trade on a
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The bet in a merger arbitrage is that such a spread will eventually be zero, if and when the takeover is completed. The risk is that the deal "breaks" and the spread massively widens.
1277:. When rates move higher, the bond part of a convertible bond tends to move lower, but the call option part of a convertible bond moves higher (and the aggregate tends to move lower).
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Autrey, R.L., Bova, F. and
Soberman, D.A. (2015), “When gray is good: gray markets and marketcreating investments”, Production and Operations Management, Vol. 24 No. 4, pp. 547-559
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a lower cost. The calls are seen as free by the UK contract mobile phone customers since they are using up their allocated monthly minutes rather than paying for additional calls.
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are slow to update the prices. This momentary mispricing creates the opportunity for an arbitrageur to capture the difference between the two prices. For example, the price of
1008:. In the extreme case this is merger arbitrage, described below. In comparison to the classical quick arbitrage transaction, such an operation can produce disastrous losses.
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present-value approach, the cash flows are discounted with one discount rate to find the price of the bond. In arbitrage-free pricing, multiple discount rates are used.
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in general. Private markets to public markets differences may also help explain the overnight windfall gains enjoyed by principals of companies that just did an
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Also known as interexchange arbitrage, this is the form of arbitrage that takes advantage of the difference between two or more crypto exchanges. For example, on
875:, and the price of securities in different markets tend to converge. The speed at which they do so is a measure of market efficiency. Arbitrage tends to reduce
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Arbitrage is not simply the act of buying a product in one market and selling it in another for a higher price at some later time. The transactions must occur
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environment, where the use of fast server hardware allows an arbitrageur to realize opportunities that may exist for as little as nanoseconds. A study by the
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Arbitrage transactions in modern securities markets involve fairly low day-to-day risks, but can face extremely high risk in rare situations, particularly
1145:. If these prices are misquoted relative to the put-call parity relationship, it provides an arbitrageur the opportunity to profit from the mispricing.
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1383:. If 1 euro costs US$ 1.11, a cross-border trader could enter a buy order on the XETRA at €98.03 per Apple share and a sell order at €98.07 per share.
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consists of buying a convertible bond and hedging two of the three factors in order to gain exposure to the third factor at a very attractive price.
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of revenue bonds). Managers aim to capture the inefficiencies arising from the heavy participation of non-economic investors (i.e., high income "
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cross-border trader would need to transfer the shares bought on NASDAQ to the German XETRA exchange, where he is obliged to deliver the stock.
1398:. This kind of high-frequency trading benefits the public, as it reduces the cost to the German investor and enables them to buy U.S. shares.
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bond valued with the arbitrage-free pricing approach turns out to be priced higher in the market, an investor could have such an opportunity:
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383:" as a consideration of different exchange rates to recognise the most profitable places of issuance and settlement for a bill of exchange ("
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What is
Regulatory Arbitrage. Regulatory Arbitrage after the Basel ii framework and the 8th Company Law Directive of the European Union.
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223: – striking a combination of matching deals to capitalize on the difference, the profit being the difference between the
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it could be sold for $ 1.5. Although there are some risks involved in that type of arbitrage, such as network and exchange fees,
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Second, managers construct leveraged portfolios of AAA- or AA-rated tax-exempt municipal bonds with the duration risk hedged by
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Mahdavi Damghani, Babak (2013). "The Non-Misleading Value of Inferred Correlation: An Introduction to the Cointelation Model".
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This process can increase the overall riskiness of institutions under a risk insensitive regulatory regime, as described by
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1031:, profiting from the difference between the bond spread and the CDS premium, in a financial crisis, the bonds may default
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At maturity, the prices will converge and be equal. Investor exits both the long and short positions, realising a profit.
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de Jong, A.; Rosenthal, L.; van Dijk, M.A. (June 2008). "The Risk and Return of Arbitrage in Dual-Listed Companies".
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that an investor can return to the issuing company in exchange for a predetermined number of shares in the company.
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Arbitrage has the effect of causing prices in different markets to converge. As a result of arbitrage, the currency
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Investor longs the zero-coupon bonds making up the related yield curve and strips and sells any coupon payments at t
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overload, and inability to deposit or withdraw funds, this activity remains one of the most profitable ventures in
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535:(or the asset has significant costs of storage; so this condition holds true for something like grain but not for
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359:"Arbitrage" is a French word and denotes a decision by an arbitrator or arbitration tribunal (in modern French, "
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Arbitrage has the effect of causing prices of the same or very similar assets in different markets to converge.
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the CDS writer/seller may fail, due to the stress of the crisis, causing the arbitrageur to face steep losses.
1283:. When the price of the stock the bond is convertible into moves higher, the price of the bond tends to rise.
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states that arbitrage opportunities will eventually be discovered and corrected. The prices of the bonds in t
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2277:"Phone Call Arbitrage Is All Fun And Games (And Profit) Until AT&T Hits You With A $ 2 Million Lawsuit"
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of the United Kingdom found that this practice generates as much as $ 5 billion per year in profit.
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Willesson, Magnus (2017). "What is and What is not Regulatory Arbitrage? A Review and Syntheses".
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exchanges and inter-dealer brokers allow multi legged trades (e.g. basis block trades on LIFFE).
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If the market prices do not allow for profitable arbitrage, the prices are said to constitute an
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was associated with some of the famous financial scandals of the 1980s, such as those involving
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In the simplest example, any good sold in one market should sell for the same price in another.
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is a security that is offered as a "tracking stock" on another foreign market. For instance, a
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Mahdavi Damghani, Babak (2013). "De-arbitraging With a Weak Smile: Application to Skew Risk".
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in September 1998. LTCM had attempted to make money on the price difference between different
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However, many municipal bonds are callable, and this adds substantial risks to the strategy.
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and occurs naturally in arbitrage relations as the seller view as opposed to the buyer view.
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the appropriate ratio of taxable corporate bonds. These corporate equivalents are typically
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938:(borrowed money), and in the rare event of a large price move, this may yield a large loss.
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Cross-border arbitrage exploits different prices of the same stock in different countries:
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simultaneously sell on the LSE. This leaves the arbitrageur in an unhedged risk position.
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Kondor, Peter (2009). "Risk in Dynamic Arbitrage: Price Effects of Convergence Trading".
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pricing is used for bond valuation and to detect arbitrage opportunities for investors.
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has a statistical arbitrage in every game of chance that it offers, referred to as the
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debt and domestic dollar debt. Because global markets were already nervous due to the
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an asset with a known price in the future does not today trade at its future price
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or related by a strict pricing relationship may temporarily go out of sync as the
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L'arbitrage est une combinaison que l’on fait de plusieurs changes, pour connoitre
239:
In principle and in academic use, an arbitrage is risk-free; in common use, as in
231:. When used by academics, an arbitrage is a transaction that involves no negative
1457:. Private to public equities arbitrage is a term that can arguably be applied to
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1357:
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849:{\displaystyle P(V_{t}\leq 0)=1{\text{ and }}P(V_{t}\neq 0)>0,\,0<t\leq T}
669:{\displaystyle P(V_{t}\geq 0)=1{\text{ and }}P(V_{t}\neq 0)>0,\,0<t\leq T}
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49:
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is unclear what sort of profit was realised by the banks that bailed LTCM out.
219:) is the practice of taking advantage of a difference in prices in two or more
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of many financial products, it may be unclear "where" the transaction occurs.
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In most cases, the quotation on the local exchanges is done electronically by
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at US$ 108.84. The stock is also traded on the German electronic exchange,
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cash-flows; in common use, it is also used to refer to differences between
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company wishing to raise more money may issue a depository receipt on the
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For instance an arbitrageur would first buy a convertible bond, then sell
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and the regulatory position. For example, if a bank, operating under the
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For very short amounts of time, the prices of two assets that are either
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For example, if one purchases many risky bonds, then hedges them with
2172:
When genius failed: The rise and fall of Long-Term Capital Management
2059:"Latency arbitrage trading costs investors $ 5 billion a year: Study"
1633:
1576:
1376:
1268:
The price of a convertible bond is sensitive to three major factors:
370:
1898:
Shleifer, Andrei; Vishny, Robert (1997). "The limits of arbitrage".
1417:
A good illustration of the risk of DLC arbitrage is the position in
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two assets with identical cash flows do not trade at the same price.
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profit, though losses may occur, and in practice, there are always
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903:
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The Role of Capital in Optimal Banking Supervision and Regulation
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the same asset does not trade at the same price on all markets ("
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Special Situation Investing: Hedging, Arbitrage, and Liquidation
2063:
1481:
1394:, taking into consideration the home price of the stock and the
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and the interest rate spread to make it a profitable exercise.
2231:"What is Medicaid migration and how does it apply to brokers?"
1943:
Xiong, Wei (2001). "Convergence trading with wealth effects".
1063:
Prices may diverge during a financial crisis, often termed a "
337:
185:
43:
27:
Capitalisation of risk-free opportunities in financial markets
2359:, Brian J. Stark, Dow-Jones Publishers. New York, NY 1983.
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have higher IT costs, but counts on the multiplier effect of
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The downfall in this system began on August 17, 1998, when
1291:. If the creditworthiness of the issuer deteriorates (e.g.
373:). In the sense used here, it was first defined in 1704 by
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to be borrowed to make the buying and selling profitable.
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market. An arbitrage equilibrium is a precondition for a
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and more than half of this loss is accounted for by the
1421:—which had a DLC structure until 2005—by the hedge fund
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quelle place est plus avantageuse pour tirer et remettre
2199:
Financial Markets, SME Financing and Emerging Economies
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Latency arbitrage is often mentioned especially in an
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Negative, or anti-, arbitrage is similarly defined as
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move closer together to finally become the same at t
485:, the price spread between the prices will decrease.
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1512:to the advantage of a target company under threat.
1449:(P/E) (such as a P/E of 10, which equates to a 10%
1320:(to hedge the interest rate exposure) and buy some
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74:. Unsourced material may be challenged and removed.
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1105:token like LSK could be priced at $ 1.39 while on
906:exhibit some difference between countries. These,
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704:
668:
1575:is an imbalance in expected nominal values. A
2250:"Free International Calls! Just Dial ... Iowa"
1328:his or her exposure to the underlying shares.
380:La science des négociants et teneurs de livres
8:
1043:Arbitrage trades are necessarily synthetic,
883:Arbitrage moves different currencies toward
389:
384:
378:
360:
303:. People who engage in arbitrage are called
1736:Coherence (philosophical gambling strategy)
467:Investor shorts the bond at price at time t
414:. The "no arbitrage" assumption is used in
1497:unregulated as a result of the arbitrage.
1257:A convertible bond can be thought of as a
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739:denotes the portfolio value at time
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570:Mathematically it is defined as follows:
430:Arbitrage-free pricing approach for bonds
279:The term is mainly applied to trading in
134:Learn how and when to remove this message
2011:"The Basis Monster That Ate Wall Street"
1616:(LTCM) lost 4.6 billion U.S. dollars in
1603:The fall of Long-Term Capital Management
1060:on their ability to finance themselves.
930:. Formally, arbitrage transactions have
895:tend to change exchange rates until the
1819:
1799:
1549:International telecommunications routes
1488:accord, has to hold 8% capital against
1193:municipal bond relative value arbitrage
1020:movements of cash, they are subject to
2128:
2117:
1141:on an underlying should be related by
7:
2043:
2041:
2005:
2003:
1176:the stock of the acquiring company.
72:adding citations to reliable sources
1922:10.1111/j.1540-6261.1997.tb03807.x
25:
1773:No free lunch with vanishing risk
975:illegal use of inside information
1994:10.1111/j.1540-6261.2009.01445.x
1016:As arbitrages generally involve
309:
236:and sell it for a higher price.
198:
160:
48:
2026:from the original on 2022-10-09
509:Arbitrage may take place when:
59:needs additional citations for
1945:Journal of Financial Economics
1504:in his October 1998 speech on
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1:
1957:10.1016/s0304-405x(01)00078-2
1828:Trésor de la Langue Française
1624:. For example, it would sell
1841:"Arbitrage – Knowledge Base"
1704:Uncovered interest arbitrage
1658:Types of financial arbitrage
1614:Long-Term Capital Management
1609:Long-Term Capital Management
1423:Long-Term Capital Management
969:was common. In this form of
412:general economic equilibrium
2275:Mike Masnick (2007-02-07).
2207:10.1007/978-3-319-54891-3_5
1753:Efficient-market hypothesis
1642:1997 Asian financial crisis
1350:American depositary receipt
1154:Financial Conduct Authority
2427:
1669:Covered interest arbitrage
1606:
1565:
1546:
1472:
1441:Private to public equities
1433:trade. (See further under
1242:Convertible bond arbitrage
996:
567:, for further discussion.
248:
36:
29:
2341:Greider, William (1997).
2248:Ned Potter (2006-10-13).
1354:global depository receipt
1731:Arbitrage pricing theory
1626:U.S. Treasury securities
1475:Jurisdictional arbitrage
1187:Municipal bond arbitrage
977:, and risk arbitrage in
505:Conditions for arbitrage
37:Not to be confused with
2343:One World, Ready or Not
2168:Lowenstein, R. (2000).
2148:"Dual-listed Companies"
1738:, analogous concept in
1463:initial public offering
1447:price to earnings ratio
1346:New York Stock Exchange
885:purchasing power parity
705:{\displaystyle V_{0}=0}
533:risk-free interest rate
455:-axis and yield on the
2127:Cite journal requires
1758:Immunization (finance)
1674:Fixed income arbitrage
1618:fixed income arbitrage
1392:high-frequency traders
1364:Cross-border arbitrage
1091:geographical arbitrage
850:
733:
706:
670:
418:to calculate a unique
390:
385:
379:
361:
2235:Employee Benefit News
2146:Mathijs A. van Dijk.
1721:Airline booking ploys
1694:Statistical arbitrage
1587:, or house vigorish.
1573:Statistical arbitrage
1568:Statistical arbitrage
1562:Statistical arbitrage
1473:Further information:
1402:Dual-listed companies
1318:interest rate futures
1304:Convertible arbitrage
997:Further information:
851:
734:
732:{\displaystyle V_{t}}
707:
671:
565:§ arbitrage mechanics
445:discounted cash flows
404:arbitrage equilibrium
281:financial instruments
241:statistical arbitrage
227:at which the unit is
2018:D. E. Shaw & Co.
1763:Interest rate parity
1740:Bayesian probability
1709:Volatility arbitrage
1699:Triangular arbitrage
1469:Regulatory arbitrage
912:interest rate parity
877:price discrimination
757:
716:
683:
577:
515:the law of one price
416:quantitative finance
68:improve this article
2411:Thought experiments
1845:www.corespreads.com
1826:See "Arbitrage" in
1726:Algorithmic trading
1679:Political arbitrage
1435:Limits to arbitrage
1408:dual-listed company
1332:Depository receipts
1220:interest rate swaps
1197:municipal arbitrage
947:limits to arbitrage
375:Mathieu de la Porte
2312:10.1002/wilm.10201
2201:. pp. 71–94.
2067:. 27 January 2020.
1972:Journal of Finance
1900:Journal of Finance
1885:10.1002/wilm.10252
1459:investment banking
1455:Berkshire Hathaway
1338:depositary receipt
1150:electronic trading
926:, and can lead to
846:
729:
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270:convergence trades
243:, it may refer to
30:For the film, see
2406:Financial markets
2373:978-0-87094-384-3
2345:. Penguin Press.
2216:978-3-319-54890-6
2079:"About This Site"
1684:Options arbitrage
1664:Arbitrage betting
1636:defaulted on its
1543:Telecom arbitrage
1531:According to PBS
1431:Royal Dutch Shell
1419:Royal Dutch Shell
1322:credit protection
1121:Latency arbitrage
1085:Spatial arbitrage
1076:in severe cases.
1065:flight to quality
1022:counterparty risk
1012:Counterparty risk
1006:convergence trade
999:Convergence trade
979:leveraged buyouts
908:transaction costs
902:In reality, most
863:Price convergence
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377:in his treatise "
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1097:Crypto arbitrage
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1607:Main article:
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1502:Alan Greenspan
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73:
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57:This article
55:
51:
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1744:Cointelation
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1311:fixed income
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1209:buy and hold
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244:
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66:Please help
61:verification
58:
2153:January 30,
1591:Gray market
1358:fungibility
1352:) or GDRs (
1281:stock price
1263:call option
1232:yield curve
1071:Gray market
1054:margin call
987:Ivan Boesky
971:speculation
873:commodities
424:derivatives
297:commodities
293:derivatives
83:"Arbitrage"
39:Arbitration
18:Arbitrageur
2395:Categories
2282:2008-12-23
2261:2008-12-23
1850:2016-03-17
1814:References
1494:securitise
1314:securities
1199:, or just
1111:blockchain
1058:put option
928:bankruptcy
899:is equal.
893:currencies
889:securities
537:securities
529:discounted
422:price for
301:currencies
283:, such as
94:newspapers
2401:Arbitrage
2320:154646708
1980:CiteSeerX
1908:CiteSeerX
1906:: 35–55.
1778:TANSTAAFL
1533:Frontline
1371:Example:
1052:(faces a
1045:leveraged
841:≤
813:≠
777:≤
661:≤
633:≠
597:≥
481:As t>t
355:Etymology
272:), as in
258:identical
256:asset or
233:cash flow
156:arbitrage
148:economics
2255:ABC News
2021:Archived
1930:16947326
1653:See also
1585:vigorish
1216:shorting
1201:muni arb
1174:shorting
1170:takeover
1127:fungible
993:Mismatch
936:leverage
406:, or an
264:assets (
245:expected
2299:Wilmott
2093:"SIFMA"
1872:Wilmott
1486:Basel I
1465:(IPO).
1342:Chinese
553:Traders
531:at the
459:-axis.
367:referee
362:arbitre
262:similar
221:markets
195:UK also
152:finance
108:scholar
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1634:Russia
1577:casino
1377:NASDAQ
1293:rating
1172:while
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1050:margin
1018:future
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891:, and
679:where
371:umpire
299:, and
289:stocks
254:single
229:traded
110:
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2316:S2CID
2024:(PDF)
2014:(PDF)
1926:S2CID
1794:Notes
1638:ruble
1622:bonds
1381:XETRA
1373:Apple
1250:is a
1228:SIFMA
1224:Libor
1135:calls
1080:Types
1029:CDSes
918:Risks
285:bonds
249:risks
115:JSTOR
101:books
2369:ISBN
2361:ISBN
2347:ISBN
2304:2013
2211:ISBN
2178:ISBN
2155:2013
2133:help
2108:SSRN
2064:CNBC
2032:2011
1877:2013
1482:risk
1252:bond
1139:puts
1137:and
1107:Gate
985:and
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150:and
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