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How to construct an arbitrage portfolio, and what is arbitrage portfolio!!!!!

How to construct an arbitrage portfolio, and what is arbitrage portfolio!!!!!

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Answer #1

Well, Technically we can't construct an arbitrage portfolio. Arbitrage is something we find and execute on.

Arbitrage is come to include an entire class of position structures which are not really arbitrage at all, they are just " market neutral ".

Among those are several subsets, some examples are

  • Long/short
  • Volatility arbitrage
  • Convertible arbitrage
  • Statistical arbitrage
  • Pairs trading

Arbitrage is a basic concept in trading, in general the portfolio of an arbitrager would consists of pair of stocks. One stock would be used to hold the long leg and other for the short one to reduce the risk.

An arbitrage portfolio is a portfolio with zero factor risk, that is, all the factor sensitivities are equal to zero and the portfolio requires no capital investment. Furthermore, if the market is efficient, the return on an arbitrage portfolio will be zero.

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