Provide some analysis to demonstrate your understanding of arbitrage and how such a strategy could be constructed.
Question:
Provide some analysis to demonstrate your understanding of arbitrage and how such a strategy could be constructed.
guidance: You would need to use Arbitrage in a Forward Market using real-life data.
Here you would need to have data of prices and Forwards/CDS for a specific year. In the brief it mentions 2020. But happy if you use a different year.
Based on the data you explain how the arbitrage could be a possibility. You then analyse the results to state how the arbitrage was possible. For example, did you short the asset, did you borrow to buy the asset, what interest rate have you used, any consideration for transaction costs, did you apply any markup on the risk-free rate.
You then evaluate the strategy you have used. Was it completely risk free?, what are the limitations (if any)? What are the assumptions you have made (if Any) and why?
Please show me detail for this part, use this website to gathering data: https://www.worldgovernmentbonds.com/sovereign-cds/
Data Modeling and Database Design
ISBN: 978-1285085258
2nd edition
Authors: Narayan S. Umanath, Richard W. Scammel