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.
E) none of these.

Question

Quizplus · Accepted Answer

The professional who searches for mispriced securities in specific areas such as merger-target stocks is engaged in risk arbitrage. This involves taking positions in securities that are involved in corporate events such as mergers, acquisitions, or other restructuring activities. The goal is to profit from the difference between the current market price of the security and its expected future value after the corporate event is completed. Pure arbitrage involves taking advantage of price discrepancies in the same security or asset across different markets. Option arbitrage involves taking advantage of pricing discrepancies between options contracts and their underlying securities. Equilibrium arbitrage involves exploiting pricing anomalies that arise due to market inefficiencies.

A Professional Who Searches for Mispriced Securities in Specific Areas