. [ T F ] Arbitrage insures assets are priced efficiently in various public markets. The...

. [ T F ] Arbitrage insures assets are priced efficiently in various public markets. The pricing of Options and Forwards is made efficient by a rule called “ArbitrarilyShot-Put”.

Expert Solution

False

Arbitrage does not exist if public market is efficient.

Arbitrage is the simultaneous purchase and sale of an asset to profit from an imbalance in the price. It is a trade that profits by exploiting the price differences of identical or similar financial instruments on different markets or in different forms. Arbitrage exists as a result of market inefficiencies and would therefore not exist if all markets were perfectly efficient.

Short Put'

A short put is a type of strategy regarding the selling of a put option. The option itself is a security in its own right, as it can be purchased and sold. Should the holder of the option believe that the price of the underlying security will increase before the contract’s expiration date, the option holder may buy the underlying stock, or may sell the put option (hence “short put”), which requires him to buy the stock, should the put buyer demand he do so.

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