A professional who searches for mispriced securities in specific areas such as merger-target stocks, rather than one who seeks strict (risk-free) arbitrage opportunities is engaged in
A) pure arbitrage.
B) risk arbitrage.
C) option arbitrage.
D) equilibrium arbitrage.

Question

Quizplus · Accepted Answer

Risk arbitrage involves searching for mispriced securities in areas such as merger-target stocks, which carries more risk compared to pure (risk-free) arbitrage. This strategy is not about exploiting risk-free opportunities but rather about taking calculated risks on securities that are believed to be mispriced due to specific events or conditions, such as mergers and acquisitions.

A Professional Who Searches for Mispriced Securities in Specific Areas