Arbitrage -Understanding Put – Call Parity

Dharam Chand Sethia Uncategorized Leave a Comment

Theory Vs Practical.

In theory arbitrage is just a formula/mathematical equation where if Right Hand Side ≠ Left Hand Side then there is an Arbitrage and Profit making potential.

In Practice, Markets are more than just a Mathematical equation.There are Taxes,Regulatory challenges,Transaction costs, Opportunity costs that prohibits one to operate arbitrage in Markets.Different Markets have different practices.For example in Indian markets one cannot short sell equities overnight, margin structure in derivatives segment has very big opportunity & transaction costs. With all these factors arbitrage just remains a fancy word in theory,which is good and healthy for liquid markets.