5 Questions
What is another name for the Cost of Carry model?
No-arbitrage model
What does the Cost of Carry model assume about efficient markets?
Arbitrage opportunities cannot exist in efficient markets.
What happens when there is an opportunity to make money in the market due to mispricing?
Arbitrageurs start trading to profit from these mispricing.
What happens to the prices as a result of the trading by arbitrageurs?
The prices become aligned across the products/markets.
Which of the following is a key assumption of the Cost of Carry model?
Prices will be aligned across products/markets in an efficient market.
Learn about the Cost of Carry model, also known as the no-arbitrage model, which assumes that arbitrage opportunities cannot exist in an efficient market. Understand how arbitrageurs trade to profit from mispricing in asset prices and eliminate these opportunities.
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