A riskless stock index arbitrage profit is possible if the following condition holds: F_0,T = S₀(1 + r_f - d)^T, where spot price now is S₀, value now of a futures contract expiring at time T is (F_0,T), r_f is the risk free rate, and d is the dividend.

Question

Quizplus · Accepted Answer

A riskless arbitrage profit is possible if the futures price deviates from the theoretical price, which is F_0,T = S₀(1 + r_f - d)^T. If the condition holds, the futures price is correctly priced, and no arbitrage profit is possible.

A Riskless Stock Index Arbitrage Profit Is Possible If the Following