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What is Valuation of Forward Contracts about?

The document discusses the concept of arbitrage and the "no-arbitrage" principle in financial markets. It provides three examples: 1) An opportunity to exchange currencies between two markets at different exchange rates to make a risk-free profit. This arbitrage would disappear as the rates equalized. 2) A market with two securities, A and B, that can be combined to create a portfolio that replicates the payouts of B at no initial cost and no risk of future loss, representing an arbitrage opportunity.

Author

Brandon Simmons

Language

EN