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Explain the concept of arbitrage

  1. Explain the concept of arbitrage
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ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

Arbitrage means making risk free profit : by way of shorting security which is underpriced & going long on security which is overpriced.

Forwards and Futures are priced in such a way that, no-arbitrage opportunity exits to make such risk free Profits.

Whenever mispricing occurs.

Then arbitrageurs in the market take the benefit of mispricing and bring it back to its no- Arbitrage value.

Such that no- Arbitrage window exits.

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