investment philosophies(投资金融学方面的书籍)ch11.pdfVIP

CHAPTER 11 A SURE PROFIT: THE ESSENCE OF ARBITRAGE Arbitrage represents the holy grail of investing because it allows investors to invest no money, take no risk and walk away with sure profits. In other words, it is the ultimate money machine that investors hope to access. In this chapter, we consider three types of arbitrage. The first is pure arbitrage, where, in fact, you risk nothing and earn more than the riskless rate. For pure arbitrage to be feasible, you need two assets with identical cashflows, different market values at the same point in time and a given point in time in the future at which the values have to converge. This type of arbitrage is most likely to occur in derivatives markets – options and futures- and in some parts of the bond market. The second is near arbitrage, where you have assets that have identical or almost identical cash flows, trading at different prices, but there is no guarantee that the prices will converge and there exist significant constraints on the investors forcing convergence. The third is speculative arbitrage, which may not really be arbitrage in the first place. Here, investors take advantage of what they see as mispriced and similar (though not identical) assets, buying the cheaper one and selling the more expensive one. If they are right, the difference should narrow over time, yielding profits. It is in this category that we consider hedge funds in their numerous forms. As we will see, the peril of this strategy is that the initial assessment of mispricing is usually based upon a view of the world that may or may not be justified. Pure Arbitrage The requirement that you have two assets with identical cashflows and different market prices makes pure arbitrage d