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. 

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QUESTION a a Price convergence and the basis risk that arbitrageurs take on are closely related Category 1 price convergence could happen when the cost of purchasing a security decreases while it main... View the full answer