Arbitrage and Risk Arbitrage

William T Ziemba

Chapter 15 in The Adventures of a Modern Renaissance Academic in Investing and Gambling, 2017, pp 159-164 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Arbitrage is when you construct a sure bet so that no matter the outcome, you either break even or turn a profit. Most observers say that arbitrage does not exist but actually it does in many instances because there are different financial markets for the same sports betting or financial security situation. This is because different people have different sets of information and beliefs. Lets take the simplest case: either A or B wins. Let, Oah be the British odds given on the event that A wins from betting source h and Obi that for B winning from betting source i. With these UK odds, the odds are the total return per 1 unit bet. In comparison, US odds are UK odds −1 and their payoffs are US odds +1 = UK odds…

Keywords: Financial History; Risk Management; Investment Strategies; Mean Reversion; Risk Arbitrage; Management of Assets (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Date: 2017
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