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What Is Arbitrage? Explain Why Arbitrage Drives the Contract Price

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Essay

What is arbitrage? Explain why arbitrage drives the contract price of futures to the price of the underlying asset on the expiration date,for prices above and below the asset price.


Definitions:

Balance Sheet

A financial statement that provides a snapshot of a company's financial condition at a specific point in time, detailing assets, liabilities, and shareholders' equity.

Statement of Cash Flows

A document that outlines the effect of changes in income and balance sheet accounts on cash and cash equivalents, divided into sections for operating, investing, and financing activities.

Cash Transactions

Financial activities that involve the exchange of cash between two parties.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, giving a snapshot of its financial condition.

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