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Arbitrage
In economics and finance, arbitrage is the practice of taking advantage of a price differential between two or more markets: a combination of matching deals are struck that capitalize upon the imbalance, the profit being the difference between the market prices. When used by academics, an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, a risk-free profit. A person who engages in arbitrage is called an arbitrageur. The term is mainly applied to trading in financial instruments, such as bonds, stocks, derivatives, commodities and currencies.
If the market prices do not allow for profitable arbitrage, the prices are said to constitute an arbitrage equilibrium or arbitrage-free market. An arbitrage equilibrium is a precondition for a general economic equilibrium. The assumption that there is no arbitrage is used in quantitative finance to calculate a unique risk neutral price for derivatives.
Statistical arbitrage is an imbalance in expected nominal values. A casino has a statistical arbitrage in almost every game of chance that it offers - referred to as the house edge or house advantage or even the Vigorish.
Political Arbitrage
Business is focusing on the election and guessing that a very liberal Democratic will win the White House and that Democrats will control both houses of Congress...
Activist Arbitrage
(Editor?s Note: This post comes to us from Itay Goldstein of the Wharton School at the University of Pennsylvania)
In Activist Arbitrage: A Study of Open-Ending Attempts of Closed-End Funds, which was co-written with Michael Bradley, Alon Brav, and Wei Jiang, and which was recently accepted for publication in the Journal of Financial Economics, we conduct [...
The access arbitrage
As I noted in May, if you?re a senior editor at a major news publication, you can expect regular meetings with VIPs up to and including heads of state, substantially all of them off the record...
Regulatory Arbitrage Lives
Back in 1997 — more than a decade ago — I wrote what may be my most-influential internet law article, The Internet as a Source of Regulatory Arbitrage...
Regulatory arbitrage anecdote of the day
Under the existing system, banks may choose their own regulators, which in turn are funded by the fees that the banks pay; the O...
Regulatory arbitrage attempt of the day
Patrick Jenkins gives a good example of why insurance is not a sensible way to think about or regulate financial products: Investment banks, including Goldman Sachs and Barclays Capital, are inventing schemes to reduce the capital cost of risky assets on banks' balance sheets...
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