Understanding Arbitrage: An Intuitive Approach to Financial Analysis

Preface

You can make even a parrot into a learned political economist—all he must learn are the two words “supply” and “demand”.... To make the parrot into a learned financial economist, he only needs to learn the single word ‘arbitrage.’

—Stephen A. Ross¹

This book traces the common thread binding together much of financial thought—arbitrage. Distilled to its essence, arbitrage is about identifying mispricing and developing strategies to exploit it. An inherently simple concept—the act of exploiting different prices for the same asset or portfolio—arbitrage is as important as it is commonly misunderstood. This is because arbitrage is so often presented in financial arguments that are long on technical detail but short on economic intuition. ...