If the market prices do not allow for profitable arbitrage, the prices are said to constitute an arbitrage equilibrium or arbitrage-free market.

Ticket resale is a form of arbitrage that arises when the amount demanded at the sale price exceeds the amount supplied ( that is, when event organizers charge less than the equilibrium prices for the tickets ).

Batten and Szilagyi point out that the modern reliance on electronic trading platforms and real-time equilibrium prices appear to account for the removal of the historical scale and scope of covered interest arbitrage opportunities.

Investors will still be indifferent among the available interest rates in two countries because the forward exchange rate sustains equilibrium such that the dollar return on dollar deposits is equal to the dollar return on foreign deposit, thereby eliminating the potential for covered interest arbitrage profits.

However, given financial liberalization and resulting capital mobility, arbitrage temporarily became possible until equilibrium was restored.

In economics and finance, arbitrage () is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices.

When used by academics, an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state ; in simple terms, it is the possibility of a risk-free profit at zero cost.

In principle and in academic use, an arbitrage is risk-free ; in common use, as in statistical arbitrage, it may refer to expected profit, though losses may occur, and in practice, there are always risks in arbitrage, some minor ( such as fluctuation of prices decreasing profit margins ), some major ( such as devaluation of a currency or derivative ).

In academic use, an arbitrage involves taking advantage of differences in price of a single asset or identical cash-flows ; in common use, it is also used to refer to differences between similar assets ( relative value or convergence trades ), as in merger arbitrage.

The assumption that there is no arbitrage is used in quantitative finance to calculate a unique risk neutral price for derivatives.

This type of price arbitrage is the most common, but this simple example ignores the cost of transport, storage, risk, and other factors.

In reality, this " triangle arbitrage " is so simple that it almost never occurs.

One problem with sports arbitrage is that bookmakers sometimes make mistakes and this can lead to an invocation of the ' palpable error ' rule, which most bookmakers invoke when they have made a mistake by offering or posting incorrect odds.

For example, a fund may see that there is a substantial difference between U. S. dollar debt and local currency debt of a foreign country, and enter into a series of matching trades ( including currency swaps ) to arbitrage the difference, while simultaneously entering into credit default swaps to protect against country risk and other types of specific risk.

On a larger scale, international arbitrage opportunities in commodities, goods, securities and currencies tend to change exchange rates until the purchasing power is equal.

In the academic literature, the idea that seemingly very low risk arbitrage trades might not be fully exploited because of these risk factors and other considerations is often referred to as limits to arbitrage.

One way of reducing the risk is through the illegal use of inside information, and in fact risk arbitrage with regard to leveraged buyouts was associated with some of the famous financial scandals of the 1980s such as those involving Michael Milken and Ivan Boesky.

Another risk occurs if the items being bought and sold are not identical and the arbitrage is conducted under the assumption that the prices of the items are correlated or predictable ; this is more narrowly referred to as a convergence trade.

In the extreme case this is merger arbitrage, described below.

Also called risk arbitrage, merger arbitrage generally consists of buying the stock of a company that is the target of a takeover while shorting the stock of the acquiring company.

The bet in a merger arbitrage is that such a spread will eventually be zero, if and when the takeover is completed.

See rational pricing, particularly arbitrage mechanics, for further discussion.

Converting ¥ 1000 to $ 12 in Tokyo and converting that $ 12 into ¥ 1200 in London, for a profit of ¥ 200, would be arbitrage.

However, since there is no identifiable date at which DLC prices will converge, arbitrage positions sometimes have to be kept open for considerable periods of time.

Telecom arbitrage companies allow phone users to make international calls for free through certain access numbers.

Individuals and institutions may also look for arbitrage opportunities, as when the current buying price of an asset falls below the price specified in a futures contract to sell the asset.

The concession for packet communications, perhaps against the constraint of limited international telephony competition ( with the global exceptions of callback, transit and re-file arbitrage ) -- created conditions in which Skype was natively created.

Arbitrage betting is a combination of the ancient art of arbitrage trading and gambling, which has been made possible by the large numbers of bookmakers in the marketplace, creating occasional opportunities for arbitrage.

Iceland, furthermore, has great advantages for communications companies as they are effectively immune from defamation lawsuits for disseminating any adverse information about public events or companies or figures, which is a key driver of day trading and arbitrage activity.

Ponzi's original scheme was based on the arbitrage of international reply coupons for postage stamps ; however, he soon diverted investors ' money to make payments to earlier investors and himself.

A backwardation starts when the difference between the forward price and the spot price is less than the cost of carry, or when there can be no delivery arbitrage because the asset is not currently available for purchase.

Deciding on the jurisdiction ( jurisdictional arbitrage ) is part of litigation strategy for both plaintiff and defendant, in which the make up of the likely juries in each court, and the differences between federal and state court procedures figure highly.

Not only are they generally able to offer punters better odds due to their much lower overheads, but also in giving opportunities for arbitrage: the practice of taking advantage of a price differential between two or more markets, although traditionally arbitrage has always been possible by backing all outcomes with bookmakers ( dutching ) as opposed to laying an outcome on an exchange.

The rate of return on this portfolio must be equal to the rate of return on any other riskless instrument ; otherwise, there would be opportunities for arbitrage.

Some funds require that orders be placed hours or days in advance, in order to simplify their administration, make it easier to match buyers with sellers, and eliminate the possibility of arbitrage ( for example if the fund holds investments which are traded in other time zones ).

Thus given no arbitrage opportunities, the above relationship ( put-call parity ) holds, and for any three prices of the call, put, bond and stock one can compute the implied price of the fourth.

Credit default swaps can be used by investors for speculation, hedging and arbitrage.

It turns out that in a complete market with no arbitrage opportunities there is an alternative way to do this calculation: Instead of first taking the expectation and then adjusting for an investor's risk preference, one can adjust, once and for all, the probabilities of future outcomes such that they incorporate all investors ' risk premia, and then take the expectation under this new probability distribution, the risk-neutral measure.

Private to public equities arbitrage is a term which can arguably be applied to investment banking in general.

When the stock price process is assumed to follow a more general sigma-martingale or semimartingale, then the concept of arbitrage is too narrow, and a stronger concept such as no free lunch with vanishing risk must be used to describe these opportunities in an infinite dimensional setting.

Rubin proved his skills at the intricate art of investing his firm's capital in high-reward arbitrage opportunities and became a general partner in 1971.

The arbitrage pricing theory ( APT ), a general theory of asset pricing, has become influential in the pricing of shares.

In finance, arbitrage pricing theory ( APT ) is a general theory of asset pricing that holds that the expected return of a financial asset can be modeled as a linear function of various macro-economic factors or theoretical market indices, where sensitivity to changes in each factor is represented by a factor-specific beta coefficient.

In general sense, statistical arbitrage is only demonstrably correct as the amount of trading time approaches infinity and the liquidity, or size of an allowable bet, approaches infinity.

The practice of fixed-income arbitrage in general has been compared to " picking up nickels in front of a steamroller ".