In economics and finance, arbitrage ( US: , UK: , < span> UK: is the practice of taking advantage of price differences between two or more markets: striking a combination of matching transactions that take advantage of imbalances, profit being the difference between market prices. When used by academics, arbitration is a transaction (imaginary, hypothetical, thought experiment) that does not involve negative cash flows on probabilistic or temporal circumstances and positive cash flow in at least one country; in simple terms, is the possibility of risk-free profits after transaction costs. For example, arbitration exists when there is a chance to buy something at a low price and sell it for a higher price.
In principle and in academic use, risk-free arbitration; in general use, as in statistical arbitrage, this may refer to expected earnings, although losses may occur, and in practice, there is always a risk in arbitration, some minor (such as price fluctuations decreasing profit margins) , mostly (such as currency devaluation or derivatives). In academic use, arbitration involves taking advantage of a single asset price difference or an identical cash flow ; in general use, it is also used to refer to the distinction between similar assets (relative value or convergence trade), as in merger arbitration.
The person involved in the arbitration is called arbitrageurs - like a bank or brokerage firm. The term is primarily applied to trading in financial instruments, such as bonds, stocks, derivatives, commodities and currencies.
Video Arbitrage
Etimologi
"Arbitration" is a French word and indicates a decision by an arbitrator or an arbitral tribunal. (In modern French, " arbitrage " usually means referee or referee.) In the sense used here was first defined in 1704 by Mathieu de la Porte in his treatise " La science des nÃÆ' Â © gociants et teneurs de livres "as a consideration of different exchange rates to recognize the most favorable publishing and settlement spots for the bill of exchange L'arbitrage est une combinaison que l'on fait de plusieurs change, pour connoitre [ connaÃÆ'®tre , in modern spelling] quelle place est plus avantageuse pour tirer et remettre ".)
Maps Arbitrage
Free arbitrage
If the market price does not allow for favorable arbitration, the price is said to be arbitrage balance , or the arbitrage-free market. Arbitrage equilibrium is a prerequisite for general economic balance. The assumption "no arbitration" is used in quantitative finance to calculate the price of neutral risk unique to derivatives.
The arbitrage-free pricing approach for bonds
This refers to the method of valuation of a coupon financial instrument by discounting future cash flows with multiple discount rates. Thus, a more accurate price can be obtained than if the price is calculated by the present value price approach. Arbitrage-free pricing is used for bond valuation and to detect arbitrage opportunities for investors.
For the purpose of assessing bond prices, their respective cash flows may be considered as additional cash flow packages with large packages at maturity, subject to principal. Since cash flows are scattered throughout the coming period, they must be discounted back to the present. In the present value approach, cash flow is discounted by one discount rate to find the bond price. In the arbitration-free pricing, some discount rate is used.
The present value approach assumes that the bond proceeds will remain the same to maturity. This is a simplified model because interest rates can fluctuate in the future, which in turn affects bond yields. The discount rate may differ for each cash flow for this reason. Each cash flow can be considered a zero coupon instrument that pays one payment at maturity. The discount rate used shall be the rate of several bonds without coupons with the same due date with any cash flows and similar risks as assessed instruments. By using some discounted rate, the price of free arbitration is the sum of the discounted cash flows. The arbitration-free price refers to the price at which price arbitration is not possible.
Ideas use different discount rates obtained from bonds without coupons and discount the cash flow of similar bonds to find the price derived from the yield curve. The yield curve is the same bond yield curve with different maturity. This curve can be used to see the trend of market expectations about how interest rates will move in the future. In the pricing of the arbitration-free bonds, zero-coupon bond yield curves similar to the different maturities are made. If the curve was made with Treasury securities of different maturities, they would be stripped of their coupon payments via bootstrap. This is to convert bonds into bonds without coupons. The result of this zero-coupon bond will then be plotted on the diagram with time on x -axis and generates on y -axis.
Since the yield curve shows market expectations of how yields and interest rates can move, the arbitrage-free pricing approach is more realistic than using only one discount rate. Investors can use this approach to assess bonds and find price discrepancies, generate arbitrage opportunities. If bonds assessed by the arbitrage-free pricing approach are priced higher in the market, investors may have such an opportunity:
- Investors shorten bond prices at t 1 .
- Investors extend the zero-coupon bonds that form the associated yield curve and peel and sell any coupon payouts in t 1 .
- Because t & gt; t 1 , the price difference between the prices will decrease.
- At maturity the price will meet and equal. Investors out of long positions and short, realize the benefits.
If the result of the valuation is a reversed case, the opposite position will be taken in the bond. This arbitrage opportunity arises from the assumption that the price of a bond with the same property will meet at maturity. This can be explained by market efficiency, stating that arbitrage opportunities will eventually be found and corrected appropriately. Bond prices in t 1 are moving closer to eventually becoming the same at t T .
Provisions for arbitrage
Arbitration is possible when one of the three conditions is met:
- The same asset does not trade at the same price in all markets ("one price law").
- Two assets with identical cash flow do not trade at the same price.
- An asset with a price known in the future is currently not trading at its future price discounted at a risk free rate (or, the asset has a significant cost of storage; hence, for example, this condition applies to grains but not for securities).
Arbitrage is not just the act of buying a product in one market and selling it in another market at a higher price at a later time. Transactions must occur simultaneously to avoid exposure to market risk, or risk that prices may change in one market before the two transactions are completed. In practical terms, this is generally only possible with securities and financial products that can be traded electronically, and even then, when every trading leg is run the price in the market may have moved on. Missing one of the trading legs (and then having to trade it soon after at a worse price) is called 'risk of execution' or more specifically 'foot risk'.
In the simplest example, every item sold in one market must be sold at the same price in another market. Traders can, for example, find that wheat prices are lower in agricultural areas than in cities, buy goods, and transport them to other areas for sale at a higher price. This type of price arbitration is the most common, but this simple example ignores the costs of transportation, storage, risk, and other factors. The "Right" principle requires no market risk involved. Where securities are traded on more than one exchange, arbitration occurs by simultaneously buying in one and selling on the other.
See the rational price, especially arbitration mechanics, for further discussion.
Secara matematis didefinisikan sebagai berikut:
di mana dan menunjukkan nilai portofolio pada waktu t .
Konvergensi harga
Arbitration has the effect of causing prices in different markets to meet. As a result of arbitration, the exchange rates of currencies, commodity prices, and the price of securities in different markets tend to coalesce. The speed at which they do it is a measure of market efficiency. Arbitrage tends to reduce price discrimination by encouraging people to buy goods at low prices and reselling them where the price is high (as long as the buyer is not prohibited from reselling and the purchase transaction costs, holding and reselling are relatively small price differences in different markets).
Arbitrage moves various currencies toward purchasing power parity. For example, assume that a car purchased in the United States is cheaper than the same car in Canada. The Canadians will buy their car across the border to exploit the condition of the arbitration. At the same time, Americans will buy US cars, transport them across borders, then sell them in Canada. The Canadians must buy American dollars to buy cars and Americans must sell the Canadian dollars they receive instead. Both actions will increase demand for the US dollar and Canadian dollar supply. As a result, there will be appreciation of the US currency. This will make the US car more expensive and Canadian cars less so until the price is the same. On a larger scale, international arbitrage opportunities in commodities, goods, securities and currencies tend to change the exchange rate until purchasing power is the same.
In fact, most assets show the difference between countries. This, transaction costs, taxes, and other fees become a barrier to such arbitration. Similarly, arbitration affects the difference in interest rates paid on government bonds issued by various countries, given the expected depreciation in the currency relative to each other (see interest rate parity).
Risk
Arbitration transactions in the modern securities market involve fairly low daily risks, but can face extremely high risks in rare situations, especially financial crises, and can lead to bankruptcy. Formally, arbitration transactions have a negative slope - prices can get smaller amounts closer (but often no closer than 0), while they can be very far apart. Everyday risks are generally small because transactions involve small price differences, so failure of execution will generally lead to small losses (except for very large trades or fast moving prices). Rare case risks are very high because these small price differences are converted into large profits through leverage, and in rare instances of large price movements, this can result in huge losses.
The main risk everyday is part of a failed transaction - the risk of execution. The main risk that is rare is the opponent's risk and liquidity risk - that the partner for a large transaction or a lot of transactions fails to pay, or is required to post the margin and have no money to do so.
In the academic literature, the notion that seemingly very low-risk arbitration deals may not be fully exploited because risk factors and other considerations are often referred to as limits for arbitration.
Execution risk
Generally it is not possible to close two or three transactions at the same time; Therefore, it is possible that when one part of the deal is closed, a rapid price shift makes it impossible to close the other at a favorable price. However, this is not necessarily the case. Many exchange and inter-dealer intermediaries allow multi-leg trades (eg trading base blocks on LIFFE).
Competition in the market can also create risks during arbitration transactions. For example, if someone tries to take advantage of the price difference between IBM on the NYSE and IBM on the London Stock Exchange, they can buy a large number of shares on the NYSE and find that they can not simultaneously sell on the LSE. This makes arbitrageur in risk position without protection.
In the 1980s, arbitration risks were common. In the form of this speculation, a person trades securities that are clearly under-valued or overvalued, when it appears that a wrong judgment will be corrected by events. Standard examples are company stocks, which are rated low on the stock market, which will be the object of a takeover bid; the acquisition price will better reflect the value of the company, giving big profits to those who buy at current prices - if the merger goes as expected. Traditionally, arbitration transactions in securities markets involve high speed, high volume and low risk. At one time there was a price difference, and the problem was to carry out two or three balancing transactions while differences remained (ie, before other arbitration acts). When a transaction involves a delay of several weeks or months, as above, it may require a big risk if borrowing money is used to enlarge the gift through leverage. One way to reduce this risk is through the illegal use of inside information, and in fact, arbitration risks associated with debt purchases are associated with some of the most notorious financial scandals of the 1980s such as those involving Michael Milken and Ivan Boesky.
Mismatch
Another risk occurs if the goods purchased and sold are not identical and the arbitration is done on the assumption that the price of the goods is correlated or predictable; this is more narrowly referred to as the convergence trade. In the extreme case this is a merger arbitration, described below. Compared to classic quick arbitration transactions, such operations can result in enormous losses.
Counterparty Risk
Since arbitration generally involves future cash movements , they are subject to counterparty risk: if the counterpart fails to meet their transactional side. This is a serious problem if a person has a single trade or multiple trades associated with a counterpart, whose failure is a threat, or in financial crisis when many parties fail. This danger is serious because large numbers of people have to trade to benefit from a small price difference.
For example, if someone buys a lot of risky bonds, then protects them with CDSes, benefits from the difference between the spread of bonds and CDS premiums, in a financial crisis the bonds can fail and CD/CDS writers may themselves fail, because of the stress of the crisis, causing arbitration to facing steep losses.
Liquidity risk
Arbitrage trading is a synthetic trade, leveraged , because it involves short positions. If the asset used is not identical (so the price difference makes the trade temporarily lose money), or the margin treatment is not identical, and the trader must put margin (deal with margin call), the trader may run out of capital (if they run out of cash and can not borrow more many) and were forced to sell these assets at a loss even though trade might be expected to eventually make money. As a result, arbitration traders synthesize the put option on their ability to finance themselves.
Prices may deviate during financial crises, often called "flight to quality"; this is the most difficult time for profitable investors to raise capital (due to overall capital constraints), and thus they will lack the capital just when they need it most.
Type of arbitrage
Arbitrage spatial
Also known as geographic arbitrage , this is the simplest form of arbitration. In spatial arbitration, an arbitrageur seeks price differences between geographically dispersed markets. For example, there may be bond dealers in Virginia who offer bonds at 100-12/23 and dealers in Washington bid 100-15/23 for the same bond. For whatever reason, the two dealers do not see the price difference, but arbitrage does it. Arbitration immediately bought bonds from a Virginia dealer and sold them to a Washington dealer.
Merger arbitrage
Also called risk arbitration, merger arbitrage generally consists of buying/holding shares of a company which is a takeover target while shortening the stock of the acquired company.
Usually the market price of the target company is less than the price offered by the acquiring company. The spread between these two prices is highly dependent on the probability and timing of the completed takeover and the prevailing interest rate.
The bet in a merger arbitration is that such a spread will ultimately be zero, if and when the takeover is complete. The risk is that the deal "broke" and its spread widened massively.
Municipal arbitration bonds
Also called arbitration of the relative value of municipal bonds, city arbitration, or just muni arb , strategy This hedge fund involves one of two approaches. The term "arbitration" is also used in the context of the Income Tax Regulations governing investment of municipio bond yields; these regulations, aimed at issuers or beneficiaries of tax-deductible municipal bonds, differ and, on the other hand, seek to remove the issuer's ability to arbitrate between the low tax free rate and the level of taxable investment.
Generally, managers look for relative value chances by being long and short city bonds with a duration-neutral book. The value of trade is relatively possible between different issuers, different bonds issued by the same entity, or the structure of trade capital that refers to the same asset (in the case of income bonds). Managers aim to capture the inefficiencies that arise from the large participation of non-economic investors (ie, high-income "buy and hold" investors seeking tax-free income) as well as "cross purchases" arising from changes in corporate or individual earnings. the tax situation (ie, the insurance company diverts their munis to the company after a big loss because they can capture higher after-tax yields by offsetting the taxable company's income with an underwriting loss). There is an added inefficiency arising from the highly fragmented nature of the municipal bond market that has two million extraordinary problems and 50,000 publishers, unlike the 400-issue Treasury market and a single publisher.
Second, managers build portfolios with leverage from municipal bonds that are exempt from AAA or AA taxes with a risk of sheltered duration by shortening the appropriate ratio of taxable corporate bonds. The equivalent of this company is usually an interest rate swap referring to Libor or SIFMA [1] [2]. Arbitrage manifests itself in the form of relatively cheap long-lived government bonds, which are municipal bonds that generate significantly more than 65% of the corresponding taxable corporate bonds. The steep slope of the city result curve allows participants to collect more after-tax revenues from a portfolio of municipal bonds than to spend on interest-rate swaps; bring greater than hedging costs. Carry positive and tax free from muni arb can reach double digits. The bet in the arbitration of these bonds is that, in the longer term, two similar instruments - municipio bonds and interest rate swaps - will be correlated with each other; both are very high quality credits, have the same maturity and in the same currency. Credit risk and duration risk are largely eliminated in this strategy. However, the basic risks arise from the use of incomplete fences, which result in significant but limited volatility. The ultimate goal is to limit this principal volatility, eliminating its relevance over time when high, consistent, and tax-free cash flows accumulate. Because the inefficiency is related to the government tax policy, and therefore structural, it is not simplified.
However, please note that many local government bonds may be delayed, and this poses a significant additional risk to the strategy.
arbitration of convertible bonds
A convertible bond is a bond that can be returned by an investor to the issuing company by redeeming a certain number of shares that have been determined at the company.
A convertible bond may be considered a firm bond with the call stock option attached to it.
Convertible bond prices are sensitive to three major factors:
- the interest rate . As the price moves higher, the bond portion of the convertible bonds tends to move lower, but the call option portion of the convertible bond moves higher (and the aggregate tends to move lower).
- stock price . When bond stock prices can be converted to move higher, bond prices tend to rise.
- credit spread . If the issuer's credit rating is worsening (eg rating downgrades) and credit spreads are widening, bond prices tend to move lower, but, in most cases, the call option part of convertible bonds moves higher (since credit spread is correlated with volatility).
Given the complexity of the calculations involved and the intricate structures that convertible bonds can have, an arbitration often depends on a sophisticated quantitative model to identify low-cost bonds versus their theoretical value.
Convertible arbitrage consists of buying convertible bonds and hedging two of the three factors to gain exposure to a third factor at a very attractive price.
For example an arbitrage will first buy a convertible bond, then sell a fixed income securities or interest rate (to protect interest rate exposure) and buy some credit protection (to protect the risk of credit downturn). Finally what's left with him is something similar to the call option on the underlying stock, earned at a very low price. He can then earn money by selling some of the more expensive options that are traded openly in markets or deltas that protect his exposure to the underlying stock.
Receipt receipt
Storage receipt is the security offered as "stock tracking" in other foreign markets. For example, a Chinese company that wants to raise more money can issue a storage receipt on the New York Stock Exchange, because the amount of capital in local exchanges is limited. These securities, known as ADR (American Depositary Receipt) or GDR (global storage reception) depending on where they are issued, are usually considered "foreign" and therefore trade at a lower value when first released. Many ADRs can be exchanged for genuine security (known as fungibility) and actually have the same value. In this case there is a spread between perceived value and real value, which can be extracted. Other non-exchangeable ADRs often have much larger spreads. Because ADR is traded at a lower value than what is valuable, one can buy ADR and hope to make money because its value is integrated with the original. However, it is possible that the original stock will fall in value as well, so in a nutshell someone can protect that risk.
cross-border arbitrage
Cross-border arbitrage exploits different prices of the same shares in different countries:
Example: Apple trades on NASDAQ for US $ 108.84. The shares are also traded on the German electronic exchange, XETRA. If 1 euro costs US $ 1.11, cross-border traders can enter purchase orders on XETRA at EUR98.03 per Apple share and sell orders at EUR98.07 per share.
Some brokers in Germany do not offer access to US exchanges. Therefore, if a German retail investor wants to buy Apple shares, he should buy them at XETRA. Cross border merchants will sell Apple shares on XETRA to investors and buy shares at the same time on the NASDAQ. Thereafter, cross-border traders will need to transfer the shares purchased on NASDAQ to the German XETRA exchanges, where it is obliged to deliver the stock.
In many cases, quotations on local exchanges are conducted electronically by high-frequency traders, taking into account the house prices of shares and exchange rates. Such high-frequency trading is beneficial to the public as it reduces costs for German investors and allows him to buy US stocks.
Double listed company
The structure of a double listed company (DLC) involves two companies incorporated in various countries who contractually agree to operate their business as if they were a single company, while retaining their separate legal identity and list of existing stock exchanges. In an integrated and efficient financial market, stock prices of twin pairs should move in a row. In practice, the DLC share price indicates a major deviation from theoretical parity. The position of arbitration in DLC can be adjusted by obtaining long positions in relatively expensive DLC parts and short positions in relatively overpriced parts. Such arbitration strategies begin to work as soon as the relative prices of the two DLC stocks converge to theoretical parity. However, since there is no identifiable date on which DLC prices will converge, the arbitration position must occasionally remain open for a considerable period of time. Meanwhile, the price difference may be widening. In this situation, the arbitration may receive a margin call, after which they will most likely be forced to liquidate some of the positions at a very unfortunate and suffering loss. Arbitrage in DLC may be beneficial, but also very risky.
A good illustration of the risks of DLC arbitration is the position at Royal Dutch Shell - which has a DLC structure until 2005 - by Long Term Capital Management (LTCM, see below). Lowenstein (2000) explains that LTCM established an arbitrage position at Royal Dutch Shell in the summer of 1997, when Royal Dutch traded at a premium of 8 to 10 percent. In total, $ 2.3 billion was invested, half of the old in Shell and the other half was short at Royal Dutch (Lowenstein, p 99). In the fall of 1998, a massive default on Russian debt created significant losses for hedge funds and LTCM had to let go of several positions. Lowenstein reported that Royal Dutch premiums had risen to about 22 percent and LTCM had to close its positions and suffer losses. According to Lowenstein (p 234), LTCM lost $ 286 million in equity trading and more than half of this loss was calculated by Royal Dutch Shell trade.
Private shares to the public
Market prices for private firms are typically seen from a return on investment perspective (such as 25%), while the public holding and or exchanging listed companies trades on price-to-earnings (P/E) ratios (such as P/E 10, which equals the 10% ). Thus, if a publicly traded company specializes in the acquisition of a private company, from a per-share perspective there is an advantage with every acquisition that is included in these guidelines. For example, Berkshire Hathaway and Halydean Corporation. Private to private equity arbitrage is a term that can be practically applied to investment banking in general. The private market to the public market a difference can also help explain the unexpected overnight gains enjoyed by the head of a company that has just conducted an initial public offering (IPO).
Arbitration rules
Arbitration rules are in which regulated institutions take advantage of the difference between a real (or economic) risk and a regulatory position. For example, if a bank, operating under the Basel I agreement, should hold 8% of the capital against default risk, but the real risk of default is lower, it is advantageous to secure the loan, eliminating low-risk loans from its portfolio. On the other hand, if the real risk is higher than the risk of regulation, it is advantageous to make the loan and hold on to it, provided it is appropriately priced. Arbitration rules may result in the share of all businesses not regulated as a result of arbitration.
This process can increase the overall risk of the institution under the risk-insensitive regulatory regime, as explained by Alan Greenspan in his October 1998 speech on the Role of Capital in Optimal Banking and Regulation of Banking.
The term "Arbitration Rule" was used for the first time in 2005 when applied by Scott V. Simpson, a partner at the Skadden law firm, Arps, to refer to a new defense tactic in hostile mergers and acquisitions where different takeover regimes in multi- -yurisdiction is exploited for the benefit of the target company under threat.
In economics, regulatory arbitrage (sometimes, tax arbitration) may be used to refer to a situation where a company may choose a nominal business place with a lower-priced regulatory, legal or tax regime. For example, insurance companies may choose to search in Bermuda due to preferential rates and tax policies for insurance companies. This can happen especially when business transactions do not have a clear physical location. In many cases financial products, it may not be clear "where" transactions occur.
Arbitration rules may include bank restructuring with outsourcing services such as IT. The outsourcing company takes over the installation, buys the bank's assets and charges the service periodically back to the bank. This frees up the cash flow that can be used for new loans by banks. Banks will have higher IT costs, but rely on multiplier effects of money creation and interest rate spreads to make it a profitable exercise.
Example: Suppose the bank sells its IT installation for 40 million USD. With a reserve ratio of 10%, the bank can create 400 million USD additional loans (there is a lag time, and the bank should expect to return the borrowed money back to its books). Banks can often lend (and secure loans) to IT service companies to cover the cost of acquiring IT installations. This can be done at a special rate, because the only client that uses IT installation is a bank. If the bank can generate a 5% interest margin on 400 million new loans, the bank will increase its interest income by 20 million. IT services companies are free to increase their balance sheet aggressively as they and their bankers approve. This is the reason behind the outsourcing trend in the financial sector. Without these money creation benefits, it is actually more expensive to outsource IT operations because outsourcing adds a layer of management and increases overhead costs.
According to the four-part documentary of PBS Frontline 2012, "Money, Power, and Wall Street," regulatory arbitration, together with lobbying of asymmetric banks in Washington and abroad, allowed investment banks in the period before and after 2008 to continue to hack law engage in the exclusive, risky trade of opaque, swap, and other credit-based instruments created to avoid legal restrictions at the expense of clients, governments and the public.
Due to the expansion of the Affordable Medicaid Act, one form of Arbitration Rule can now be found when a business is engaged in "Medicaid Migration", a maneuver in which eligible employees who would normally be enrolled in a company's health plan choose to enroll in Medicaid instead.. These programs that have characteristics similar to the insurance products to employees, but have a very different cost structure, resulting in significant cost reductions for entrepreneurs.
Telecom arbitration
Telecommunication arbitration companies allow phone users to make international calls for free through certain access numbers. Such services are offered in the UK; telecommunications arbitration companies are paid interconnection fees by the UK cellular network and then purchase international routes at a lower cost. The calls are considered free by UK contract mobile phone customers as they use their monthly minutes allocated instead of paying for additional calls.
The service was previously offered in the United States by companies such as FuturePhone.com. The service will operate in rural phone exchanges, especially in small towns in the state of Iowa. In these areas, local telephone operators are permitted to charge high callers' terminating fees to finance the cost of providing services to the small, sparsely populated areas they serve. However, FuturePhone (as well as other similar services) ceases operations on the legal challenges of AT & T and other service providers.
statistical arbitrage
The statistical arbitrage is an imbalance in the expected nominal value. The casino has statistical arbitrage in every game it offers - referred to as home advantage, home advantage, passionate or passionate home.
Fall of Long Term Capital Management
Long Term Capital Management (LTCM) lost 4.6 billion US dollars in fixed income arbitration in September 1998. LTCM has been trying to make money on the price difference between different bonds. For example, it will sell US Treasury securities and buy Italian bond futures. The concept is that because Italian bonds have less liquid markets, in the short term Italian bond futures will have higher returns than US bonds, but over the long run, prices will converge. Because of the small difference, large sums of money have to be borrowed to make purchases and sales profitable.
The fall in the system began on August 17, 1998, when Russia failed to pay its ruble and domestic dollar debt. Because the market was already nervous because of the 1997 Asian financial crisis, investors began selling non-US treasury debt and buying US treasury, which is considered a safe investment. As a result, prices on US treasuries begin to rise and returns begin to decline as there are many buyers, and returns on other bonds begin to increase as there are many sellers (ie the price of the bonds down). This caused the difference between US treasury prices and other bonds to rise, not decrease as LTCM expects. Eventually this causes LTCM to fold, and their creditors have to set up bail-outs. More controversially, officials of the Federal Reserve assist in negotiations leading to this bailout, arguing that so many companies and agreements are intertwined with LTCM that if LTCM really fails, they too will, lead to a collapse of confidence in the economic system. So LTCM fails as a fixed income arbitrage fund, although it is unclear what kind of profit is realized by banks that release LTCM.
See also
Type of financial arbitrage
- The arbitration wag
- Covered interest arbitrage
- Arbitrage fixed revenue
- political arbitrage
- remarketing arbitrage
- Risk arbitrage
- statistical arbitrage
- Parallel arbitration
- Uncover arbitrage of interest
- Arbitrage volatility
Related concepts
- Booking flight ploys
- Trade algorithm
- Arbitrary pricing theory
- Coherence (philosophical gambling strategy), analogous concept in Bayesian probability
- Cointegrate
- Delivery drop
- Efficient market hypothesis
- Immunization (finance)
- Interest rate parity
- Intermediation
- No free lunch at risk of missing
- TANSTAAFL
- Investment value
Note
References
External links
- What is Arbitrage? (About.com)
- ArbitrageView.com - Arbitrage opportunities in pending merger transactions in the US market
- Information about arbitration in companies listed on two Mathijs A. van Dijk websites.
- What is Arbitrage Rule. Arbitration Rules after the Basel II framework and the EU Company's 8th Law Rules.
- Arbitration Institution.
- The Institute of the Stock Market Course.
Source of the article : Wikipedia
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