Why buy bonds in a no-arbitrage market?
How do you calculate no arbitrage price of a bond?
Quote: We know that the price of the bond. Should actually be equal to the price of the portfolio of zero coupon bonds that could be used to create the same cash flows.
What are the 3 types of arbitrage?
Types of Arbitrage
- Pure Arbitrage. Pure arbitrage refers to the investment strategy above, in which an investor simultaneously buys and sells a security in different markets to take advantage of a price difference. …
- Merger Arbitrage. …
- Convertible Arbitrage.
What are the three conditions for arbitrage?
There are three basic conditions under which arbitrage is possible:
- The same asset trades for different prices in different markets. …
- Assets with the same cash flows trade for different prices. …
- Assets with a known future price trade at a discount today, in relation to the risk-free interest rate.