Thursday, October 8, 2020

Arbitrage In Practice And Theory — Brian Romanchuk

The textbook "The Mathematics of Financial Derivatives: A Student Introduction" by Paul Wilmott, Sam Howison, and Jeff Dewynne (Amazon affiliate link) is a standard introductory text, and describes arbitrage in the following fashion.

This [arbitrage] can be loosely stated as "there is no such thing as a free lunch." More formally, in financial terms, there are never any opportunities to make an instantaneous risk-free profit. (More correctly, such opportunities cannot exist for a significant length of time before prices move to eliminate them.)...
Bond Economics
Arbitrage In Practice And Theory
Brian Romanchuk

3 comments:

Matt Franko said...

“ The nastiness of the 1998 LTCM crisis was partly the result of "everyone" having to unwind the same trades at the same time”

That’s when we were running fiscal surplus and they used the TTL Accountsat the Depositories to deposit the Treasury’s surplus USD balances and deposit liability balances were surging... depressing the Tier1/D regulatory ratio below threshold so they had to reduce loan Assets to bring other (non Treasury TTL) deposits down .(MMT “loans create deposits”)..... so everybody was forced to sell at the same time.....

Art degree clarinet Player Ayn Rand suck up in charge too stupid to figure it out....

Peter Pan said...

Everything is a free lunch in terms of energy.

Mike Norman said...

"Art degree clarinet Player Ayn Rand suck up in charge too stupid to figure it out..."

Hahahahahahaha. LOLOLOLOL!!!!