Arbitrage -

Limits to Arbitrage and the Skewness Risk Premium in Options Markets

: A trader (often a computer) finds a price difference for the same asset on two different exchanges. arbitrage

While often described as "free money," several factors can erase profits: Limits to Arbitrage and the Skewness Risk Premium

: They buy on the cheaper exchange and simultaneously sell on the more expensive one. arbitrage

: This activity actually helps the market by narrowing price gaps, eventually driving prices toward efficiency. Common Strategies

: Buying physical goods (e.g., collectibles, thrift store finds) in one location to sell immediately for a higher price on another platform. Key Risks & Challenges