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"Arbitrage" is a French word and denotes a decision by an arbitrator or arbitration tribunal (in modern French, "arbitre" usually means referee or umpire).It was first defined as a financial term in 1704 by French mathemetician Mathieu de la Porte in his treatise "La science des négociants et teneurs de livres" as a consideration of different exchange rates to recognise the most profitable ...
In finance, statistical arbitrage (often abbreviated as Stat Arb or StatArb) is a class of short-term financial trading strategies that employ mean reversion models involving broadly diversified portfolios of securities (hundreds to thousands) held for short periods of time (generally seconds to days). These strategies are supported by ...
Online Arbitration is a form of arbitration that occurs exclusively online. There is currently an assumption that online arbitration is admissible under the New York Convention and the E-Commerce Directive, but this has not been legally verified. [ 59 ]
In a discrete (i.e. finite state) market, the following hold: [2] The First Fundamental Theorem of Asset Pricing: A discrete market on a discrete probability space (,,) is arbitrage-free if, and only if, there exists at least one risk neutral probability measure that is equivalent to the original probability measure, P.
Convergence trade is a trading strategy consisting of two positions: buying one asset forward—i.e., for delivery in future (going long the asset)—and selling a similar asset forward (going short the asset) for a higher price, in the expectation that by the time the assets must be delivered, the prices will have become closer to equal (will have converged), and thus one profits by the ...
If they engage in arbitrage in reaction to a stock mispricing, and the mispricing persists for an extended period, clients of the money management firm can (and do) formulate the opinion that the firm is incompetent. This results in withdrawal of the clients' funds. In order to deliver funds, the manager must unwind the position at a loss.
Arbitrage is the practice of taking advantage of a state of imbalance between two (or possibly more) markets. Where this mismatch can be exploited (i.e. after transaction costs, storage costs, transport costs, dividends etc.) the arbitrageur can "lock in" a risk-free profit by purchasing and selling simultaneously in both markets.
In finance, arbitrage pricing theory (APT) is a multi-factor model for asset pricing which relates various macro-economic (systematic) risk variables to the pricing of financial assets. Proposed by economist Stephen Ross in 1976, [ 1 ] it is widely believed to be an improved alternative to its predecessor, the capital asset pricing model (CAPM ...