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2017•World Scientific series in financeRequires access

Arbitrage and Risk Arbitrage

William T Ziemba

Open publisher page 1 citations

Abstract

Arbitrage is when you construct a sure bet so that no matter the outcome, you either break even or turn a profit. Most observers say that arbitrage does not exist but actually it does in many instances because there are different financial markets for the same sports betting or financial security situation. This is because different people have different sets of information and beliefs. Lets take the simplest case: either A or B wins. Let, Oah be the British odds given on the event that A wins from betting source h and Obi that for B winning from betting source i. With these UK odds, the odds are the total return per 1 unit bet. In comparison, US odds are UK odds −1 and their payoffs are US odds +1 = UK odds…

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What this paper is about

Arbitrage is when you construct a sure bet so that no matter the outcome, you either break even or turn a profit. Most observers say that arbitrage does not exist but actually it does in many instances because there are different financial markets for the same sports betting or financial security situation. This is because different people have different sets of information and beliefs. Lets take the simplest case: either A or B wins. Let, Oah be the British odds given on the event that A wins from betting source h and Obi that for B winning from betting source i. With these UK odds, the odds are the total return per 1 unit bet. In comparison, US odds are UK odds −1 and their payoffs are US odds +1 = UK odds…

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Available abstract

Arbitrage is when you construct a sure bet so that no matter the outcome, you either break even or turn a profit. Most observers say that arbitrage does not exist but actually it does in many instances because there are different financial markets for the same sports betting or financial security situation. This is because different people have different sets of information and beliefs. Lets take the simplest case: either A or B wins. Let, Oah be the British odds given on the event that A wins from betting source h and Obi that for B winning from betting source i. With these UK odds, the odds are the total return per 1 unit bet. In comparison, US odds are UK odds −1 and their payoffs are US odds +1 = UK odds…

Key concepts: Arbitrage, Index arbitrage, Risk arbitrage, Fixed income arbitrage, Statistical arbitrage, Economics, Business, Financial economics

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