Consider the following trade. German government bond (bund) futures trade on the LIFFE (London) and DTB (Frankfort)
Question:
Consider the following trade. German government bond (bund) futures trade on the LIFFE (London) and DTB (Frankfort) exchanges. The futures contracts have identical terms involving the delivery of €250,000 face value bonds at time T. An investor observes that the LIFFE contract trades for €240,000 while the DTB contract trades for €245,000. Construct an arbitrage trade to take advantage of this. Is this perfect arbitrage? What are some of the risks involved?
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Step by Step Answer:
A longshort arbitrage strategy involves selling the DTB future and buyin...View the full answer
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Related Book For 
Behavioral Finance
ISBN: 9780190868741
1st Edition
Authors: H. Kent Baker, Greg Filbeck, John R. Nofsinger
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