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a. Price convergence is closely related to the basis risk experienced by arbitrageurs. Describe the three categories of price convergence an arbitrageur might encounter and
a. Price convergence is closely related to the basis risk experienced by arbitrageurs. Describe the three categories of price convergence an arbitrageur might encounter and give examples of financial securities that exhibit each form of price convergence.
b. Explain the arbitrage strategies employed by Long Term Capital Management (LTCM) and why such strategies may be considered well-founded.
c. Explain how basis risk contributed to LTCMs ultimate demise.
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