Explaining No free lunch with vanishing risk
Investorline No free lunch with vanishing risk No free lunch with vanishing risk (NFLVR) is a no-arbitrage argument. We have free lunch with vanishing risk if by utilizing a sequence of…
What do you understand by Interest rate parity?
Interest rate parity is a no-arbitrage condition representing an equilibrium state under which investors will be indifferent to interest rates available on bank deposits in two countries. Two assumptions central…
What do you understand by Efficient-market hypothesis
In finance, the efficient-market hypothesis (EMH) asserts that financial markets are "informationally efficient". That is, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis,…
What is Volatility arbitrage?
Volatility arbitrage In finance, volatility arbitrage (or vol arb) is a type of statistical arbitrage that is implemented by trading a delta neutral portfolio of an option and its underlier.…
What is Uncovered interest arbitrage
Uncovered interest arbitrage is a form of arbitrage where funds are transferred abroad to take advantage of higher interest in foreign monetary centers. It involves the conversion of the domestic…
What is Triangular arbitrage?
Triangular arbitrage Triangular arbitrage (sometimes called triangle arbitrage) refers to taking advantage of a state of imbalance between three foreign exchange markets: a combination of matching deals are struck that…
What is Statistical arbitrage
In the world of finance and investments, statistical arbitrage is used in two related but distinct ways: In academic literature, "statistical arbitrage" is opposed to (deterministic) arbitrage. In deterministic arbitrage,…
Explaining Risk arbitrage
Risk arbitrage, or merger arbitrage, is an investment or trading strategy often associated with hedge funds. Two principal types of merger are possible: a cash merger, and a stock merger.…
What do you understand by Political arbitrage
Political arbitrage is a trading strategy which involves using knowledge or estimates of future political activity to forecast and discount security values. For example, the major factor in the values…
What is Fixed income arbitrage
Fixed-income arbitrage is an investment strategy generally associated with hedge funds, which consists of the discovery and exploitation of inefficiencies in the pricing of bonds, i.e. instruments from either public…