Understanding Arbitrage: An Intuitive Approach to Financial Analysis

by Randall Billingsley

Overview

Arbitrage is central both to corporate risk management and to a wide range of investment strategies. Thousands of financial executives, managers, and sophisticated investors want to understand it, but most books on arbitrage are far too abstract and technical to serve their needs. Billingsley addresses this untapped market with the first accessible and realistic guide to the concepts and modern practice of arbitrage. It relies on intuition, not advanced math: readers will find basic algebra sufficient to understand it and begin using its methods. The author starts with a lucid introduction to the fundamentals of arbitrage, including the Laws of One Price and One Expected Return. Using realistic examples, he shows how to identify assets and portfolios ripe for exploitation: mispriced commodities, securities, misvalued currencies; interest rate differences; and more. You'll learn how to establish relative prices between underlying stock, puts, calls, and 'riskless' securities like Treasury bills -- and how these techniques support derivatives pricing and hedging. Billingsley then illuminates options pricing, the heart of modern risk management and financial engineering. He concludes with an accessible introduction to the Nobel-winning Modigliani-Miller theory, and its use in analyzing capital structure.

Product Details

ISBN-13:	9780132716000
Publisher:	Pearson Education
Publication date:	10/05/2005
Sold by:	Barnes & Noble
Format:	eBook
Pages:	232
File size:	3 MB
Age Range:	18 Years

About the Author

 

Randall S. Billingsley, Ph.D., CFA is a finance professor at Virginia Tech as well as a Chartered Financial Analyst charterholder and holder of the Certified Rate of Return Analyst (CRRA) designation. He consults worldwide, and was

formerly Vice President at the Association for Investment Management and Research (now the CFA Institute). An award-winning teacher at both the undergraduate and graduate levels, he has taught review courses for CFA® charter candidates throughout the U.S. and Europe. His equity valuation case study was assigned in AIMR's Level II of the CFA® Curriculum. Billingsley serves as an expert witness on valuation and investment-related litigation.

Table of Contents

Preface.

1. Arbitrage, Hedging, and the Law of One Price.

2. Arbitrage in Action.

3. Cost of Carry Pricing.

4. International Arbitrage.

5. Put-Call Parity and Arbitrage.

6. Option Pricing.

7. Arbitrage and the (Ir)Relevance of Capital Structure.

References and Further Reading.

Index.