Arbitrage illustrated by options models

Tumellano Sebehela

International Journal of Financial Markets and Derivatives, 2012, vol. 3, issue 1, 1-11

Abstract: Most empirical studies on arbitrage opportunities tend to focus on arbitrage resulting from two 'securities', normally option value in relation to its underlying assets. However, in this empirical study it is illustrated that by writing 'different' option values the 'amount' of arbitrage increase than in case alluded earlier on in this abstract. More importantly, there are emerging multiple flexibilities in each case which gives rise to hedging opportunities without incurring any extra cost if any. Lastly, despite that the empirical study on multiple arbitrage opportunities, overall results exemplify that sequential exchange opportunities are beneficial as they afford one opportunity to earn riskless profits while hedging without incurring extra costs.

Keywords: multiple options strategies; options models; real estate investment trusts; REITs; kurtosis; skewness; arbitrage opportunities; hedging opportunities; sequential exchange. (search for similar items in EconPapers)
Date: 2012
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