Limits to Arbitrage and the Skewness Risk Premium in Options Markets
: A trader (often a computer) finds a price difference for the same asset on two different exchanges. arbitrage
While often described as "free money," several factors can erase profits: Limits to Arbitrage and the Skewness Risk Premium
: This activity actually helps the market by narrowing price gaps, eventually driving prices toward efficiency. Common Strategies arbitrage
: Buying and selling the exact same financial instrument (like a stock or currency) across different exchanges.
Arbitrageurs exploit market inefficiencies—temporary glitches where supply and demand levels differ across exchanges.
