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9 Apr 2018

What are some other methods to take advantage of potential arbitrage opportunities in the U.S. Treasury market? Are there ways with derivatives that investors can take advantage of potential arbitrage opportunities?

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Tod Thiel
Tod ThielLv2
10 Apr 2018

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Discuss the different types of notes, bills, and bonds that are sold in the U.S. Treasury market. Discuss the different participants in the markets. Discuss how arbitrage opportunities affect the different market participants and the types of interest rates they will require.

DO NOT COPY AND PASTE.

Please be more specific. Thank you!!!

As an option trader, you are constantly looking for opportunities to make an arbitrage transaction. Suppose you observe the following prices for options on ABCD co stock: $3.18 for a call with an exercise price of $60, and $3.38 for a put with an exercise price of $60. Both options expire in exactly six months, and the price of a six month T-Bill is $97(for face value of $100).


A) using the put-call-spot parity condition, demonstrate graphically how you could synthetically recreate the payoff structure of a share of ABCD stock in six months using a combination of puts, calls, and T-Bills transacted today.


B) Given the current market prices for the two otions and the T-bill, calculate the no-arbitrage price of a share of ABCD stock.


C) If the actual market price of ABCD stock is $60, demonstrate the arbitrage transaction you could create to take advantage of the discrepancy. Be specific as to the positions you would need to take in each security and the dollar amount of your profit.

1. Historically the gap in information has been one of the biggest advantages that players in the market have been able to take advantage of. With the Information channels that are available now, near real time information is available. Why is there still room in the market for players to be successful in the International financial markets?

2. How does arbitrage mitigate exposure?

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