Riskless arbitrage

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Riskless arbitrage

The simultaneous purchase and sale of the same asset to yield a profit.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Riskless Arbitrage

The act of buying an asset and immediately selling the same asset for a higher price. For example, one may execute two orders at once, one to buy a security at $10 and one to sell the same security at $12. The short time frame involved means that riskless arbitrage occurs without investment; there is no rate of return or anything like it because the asset is immediately sold. One simply makes a profit on the deal.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
When banks are given the freedom to choose, they choose riskless profit or even financial speculation over lending that would support the broader objective of economic growth.
* Absence of arbitrage opportunities (i.e., there is no way to make a riskless profit).
If any mispricing is observed, a riskless profit can be generated by dynamic hedging approach that consists of creating risk-neutral hedge positions i.e.
Note that (5) indicates the riskless profit function (e.g., Mills [15] and Petruzzi and Dada [16]), the profit in the certainty equivalent problem in which d is replaced by [mu].
Arbitrage as an idea is comparatively simple: it involves buying something "cheap" in one market and simultaneously (or nearly simultaneously) selling it "dear" in another, making a riskless profit from the price difference.
Even after paying ` 500 as borrowing cost, we will generate ` 1,500 as riskless profit.
Even after paying Rs 500 as borrowing cost, we will generate Rs 1,500 as riskless profit.
The banks use this borrowed capital to buy guaranteed government debt, taking the difference in yields as riskless profit.
Since consumers can earn a riskless profit by buying indexed bonds, they hold money and nominal bonds only if they are compensated for monetary or inflation risk.
ARBITRAGE: In finance theory, arbitrage is a riskless profit, like finding a $20 bill on the sidewalk.
If the price of the call option were more than $1.1951, one could make a riskless profit by selling the option and holding 1/2 shares of the stock.
It can be shown easily by Monte Carlo methods that, given a mean effect size around 0.2 (averaged over widely varying individual outcomes of, let's say, 32 sessions), an associative RV experiment using the roulette as a random number generator determining the target would result nearly always in a riskless profit in the long run (using a safe betting scheme).