I’m on the option markets and contracts reading. I’ve gone over the part about using the one period binomial pricing model for arbitrage…however…
Since you have to make assumptions (about how much a price of a stock will go up or down) isn’t this not actually an arbitrage opportunity, since it involves risk? If I say there’s a 50% chance of a $100 stock going to $125 and a 50% chance of it going to $80, but it’s actually got a 50% chance of going to $135…won’t that mean that there is some risk involved in this so it’s not true arbitrage?