Introduction to Option Management
In this section we consider the fundamental notion of no–arbitrage. An arbitrage opportunity arises if it is possible to make a riskless profit. In an ideal financial market, in which all investors dispose of the same pieces of information and in which all investors can react instantaneously, there should not be any arbitrage opportunity. Since otherwise each investor would try to realize the riskless profit instantaneously. The resulting transactions would change the prices of the involved financial instruments such that the arbitrage opportunity disappears.
KeywordsInterest Rate Stock Price Future Price American Option Future Contract
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