Uploaded March 2026 | Updated September 2026, 1 week ago
In this session, we look at near arbitrage, where you have two very similar (but not identical) assets trading at different prices at the same point in time or two identical assets that are mispriced with no guarantee that the price difference will close. In both cases, we argue that while you can create low-risk positions, it is impossible to create the riskless, guaranteed profit positions that characterize pure arbitrage. We look at three examples of near arbitrage: a stock that is listed and traded on different markets (either as a multiple listing or depository receipt), a closed end fund (with the possibility of liquidation or open ending) and convertible mispricing (where the stocks, bonds, convertible bonds and options on the same company are mispriced, relative to each other). With each of these, we argue that investors with sufficient capital and the power to force convergence can make excess returns.
Playlist for class (Intro + 42 sessions): youtube.com/playlist?list=PLUkh9m2BorqnZGADa8cTzeJblmrZY_SqP&si=zI2pk17pJeld4nWR
Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/invphilslides25/session28.pdf
Post-class test: https://www.stern.nyu.edu/~adamodar/pdfiles/invphilcertificate/postclass/session28test.pdf
Post-class solution: https://www.stern.nyu.edu/~adamodar/pdfiles/invphilcertificate/postclass/session28soln.pdf
In this session, we look at near arbitrage, where you have two very similar (but not identical) assets trading at different prices at the same point in time or two identical assets that are mispriced with no guarantee that the price difference will close. In both cases, we argue that while you can create low-risk positions, it is impossible to create the riskless, guaranteed profit positions that characterize pure arbitrage. We look at three examples of near arbitrage: a stock that is listed and traded on different markets (either as a multiple listing or depository receipt), a closed end fund (with the possibility of liquidation or open ending) and convertible mispricing (where the stocks, bonds, convertible bonds and options on the same company are mispriced, relative to each other). With each of these, we argue that investors with sufficient capital and the power to force convergence can make excess returns.
Playlist for class (Intro + 42 sessions): youtube.com/playlist?list=PLUkh9m2BorqnZGADa8cTzeJblmrZY_SqP&si=zI2pk17pJeld4nWR
Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/invphilslides25/session28.pdf
Post-class test: https://www.stern.nyu.edu/~adamodar/pdfiles/invphilcertificate/postclass/session28test.pdf
Post-class solution: https://www.stern.nyu.edu/~adamodar/pdfiles/invphilcertificate/postclass/session28soln.pdf
