arbitrage - IEOR 4500 Arbitrage through Linear Programming...

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IEOR 4500 Arbitrage through Linear Programming We are given: Two securities: 1 and 2 , and three scenarios for tomorrow: 1, 2, 3 . The prices we have for the securities are: today Scen. 1 Scen. 2 Scen. 3 1 10 - 7 19 - 9 2 8 6 - 8 8 Is arbitrage possible?
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IEOR 4500 Lecture 2 – arbitrage through Linear Programming We are given: Two securities: 1 and 2 , and three scenarios: 1, 2, 3 . Prices: today Scen. 1 Scen. 2 Scen. 3 1 10 - 7 19 - 9 2 8 6 - 8 8 Is arbitrage possible? We take a position today, we close it tomorrow What is today’s value? What is tomorrow’s value?
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IEOR 4500 Lecture 2 – arbitrage through Linear Programming We are given: Two securities: 1 and 2 , and three scenarios: 1, 2, 3 . Prices: today Scen. 1 Scen. 2 Scen. 3 1 10 - 7 19 - 9 2 8 6 - 8 8 Is arbitrage possible? We take a position today, we close it tomorrow What is today’s value? The sum of the position values, using today’s data! What is tomorrow’s value? The sum of the position values, using tomorrow’s data!
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IEOR 4500 Lecture 2 – arbitrage through Linear Programming We are given: Two securities: 1 and 2 , and three scenarios: 1, 2, 3 . Prices: today Scen. 1 Scen. 2 Scen. 3 1 10 - 7 19 - 9 2 8 6 - 8 8 Is arbitrage possible? We take a position today, we close it tomorrow What is today’s value? The sum of the position values, using today’s data! What is tomorrow’s value? The sum of the position values, using tomorrow’s data! Arbitrage: < 0 today, and 0 tomorrow in every scenario
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IEOR 4500 Lecture 2 – arbitrage through Linear Programming We are given: Two securities: 1 and 2 , and three scenarios: 1, 2, 3 . Prices: today Scen. 1 Scen. 2 Scen. 3 1 10 - 7 19 - 9 2 8 6 - 8 8 Is arbitrage possible?
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