Could someone please provide a clear picture of how the artbitrage works with complex examples using an asset, a dervatie and a risk free bond?
Or in the alternate provide a link to learn the same?
Cheers
& Thanks.
This is really more a Level II topic than Level I, but if you’re really interested, here’s an article I wrote on pricing currency forwards: http://financialexamhelp123.com/pricing-currency-forwards/
It covers the arbitrage transactions that are available if the forward is mispriced.
If you want something more complex, here’s one on pricing FRAs: http://financialexamhelp123.com/pricing-fras/
The arbitrage transactions there are surprisingly complicated.