Now Arbitrage

A textbook case of piracy
By Alex Beam
Globe Columnist / September 9, 2008
I was heartened to learn that college kids are wielding the same Internet piracy tools they used to bring down the recording industry to download textbooks. Although the textbook oligopolists are fighting back mightily – the Association of American Publishers uses Covington & Burling, a take-no-prisoners law firm in Washington, D.C., to hunt down malefactors – there are at least two sites still around offering books: Textbook Torrents tends to be shut down, and moves around the Web, but the last time I checked, thepiratebay.org was offering such books as – well, you’ll see.

As a writer, how can I support this? I should be an absolutist on copyright protection for all books, magazines, and newspapers. But I’m not. The publishers have disgraced themselves, and they are paying the price. Three-hundred-dollar textbooks in the hard sciences are not unusual, and the companies are selling to a captive audience. Hundred-dollar add-ons, masquerading as digital workbooks, or problem-solving sets, are not uncommon.

Publishers love to put out bogus "new" editions to drive a stake though the heart of the used textbook market, which was gaining its second wind at online auction sites. It’s not as if calculus changed since Newton invented it, is the rallying cry you hear from student activists.

How do I know textbook publishers are nothing but pirates in pin-striped suits? Because when the fast-buck artists take over a company like Houghton Mifflin, they never talk about how proud they are to be publishing Philip Roth and J.R.R. Tolkien. They know they are going to make a killing in the profit-choked textbook division, which gorges on the goodwill of parents who want their children to be properly equipped for college courses.

Now most textbook publishers are going digital, and Amazon is promising a larger-format Kindle reader for the student market. The publishers say that iTexts, which often cost less than $100, save students money. But their opponents, led by a coalition of Student Public Interest Research Groups, point out that the password-protected digi-texts put the sword to the used-book market so despised by the publishers.

Congress has gotten into the act, legislating more "transparency" in textbook pricing in the just-passed Higher Education Opportunity Act. It looks like a jumble of half-measures to me. If it had any teeth, the publishers would be squawking madly.

A young Northeastern University student named Shawn Fanning wrung billions of dollars of excess profits from the record companies when he invented Napster. Yes, it’s true that recording "artists" now gouge young people 10 times more aggressively at the concert turnstiles than they ever did at Tower Records stores, which no longer exist around here. But Steve Jobs found the right price point for music at iTunes. Between the pirates and the publishers, we’ll find our way to the right price point for textbooks, too.

Now it’s time to arbitrage . . . tuition.

Don’t steal this book
Inevitably, a reviewer will call John Hanson Mitchell, author of "The Paradise of All These Parts: A Natural History of Boston," a latter-day Henry David Thoreau, not necessarily a compliment. Call him what you will – in real life, he edits the Massachusetts Audubon Society magazine Sanctuary – he is a smart guy, walking around, paying attention. I’d name his genre nostalgic realism; Mitchell certainly knows where this city and its many peculiar institutions come from, and he understands modernity as well.

I love that his brother owns a boat named after Richard Henry Dana, and that it doesn’t have an engine – there’s Boston in a nutshell. I think this book will take its place next to Walter Muir Whitehill’s "Boston," with engravings by Rudolph Ruzicka, as one of the treasured Hub tomes of our time.

Able was I . . .
Ere I saw Alaska? Send in your Sarah Palin-dromes! A palindrome is a phrase that makes sense read forward and backward – e.g., "Madam, I’m Adam." I think there’s a lot to work with here: Is Levi vile? Close, but no cigar. I’ll buy the winner a used copy of the kind of book that Governor Palin wanted to keep out of her local library – "Huckleberry Finn," perhaps.

Alex Beam is a Globe columnist. His e-dress is beam@globe.com.

http://www.boston.com/lifestyle/articles/2008/09/09/a_textbook_case_of_piracy/?rss_id=Boston+Globe+–+Living+%2F+Arts+News

Yes, the article makes sense to me. However, this article is not "news" as you suggest. Instead, the author is writing an editorial that supports student piracy of textbooks due to what he considers price-gouging by the textbook companies. The fact that the article is an editorial is important to note given its tone.

Was there something specific about the article that you’re unclear about?

I make way less than $250,000, I am about medium 50%. Obama promised not to give me any tax hikes.

So liberals, wanna make some money? Lets set a clearing house. I will give you a check in the amount of my taxes calculated according to Bush taxation scheme and rates, and you in turn are due to pay my actual Obama taxes to IRS. Keep my tax cuts for yourself – keep the difference – become rich overnight.

Of course as of now you are also liable for $0.61 cent tax hike on my cigarettes, signed by Obama, and later my health care deductions, my charitable deductions, my mortgage deductions, and everything else which Obama will impose on me, but you of course may be confident that it will never happen, because Obama promised so, and neocons are simply fearmongering.

So, who wants to play such profitable arbitrage on my tax cuts? Liberals, helloooo – where are you?

Let’s not forget your mileage tax that the administration "isn’t" going to implement, but everyone knows that when people buy less gas, government revenue from gas tax decreases, so shazam! it’s the mileage tax.

http://nabe.com/graphweek/2008/gw080413.html

http://www.nationalpriorities.org/u_s_military_spending

Consider that the US spends more on military than the rest of the world combined: http://www.globalsecurity.org/military/world/spending.htm

If you think about a situation of increased government spending and decreased or unchanged taxes, that means that the government is borrowing more money. Sometimes when the US government borrows money, they write up T-bills, which are then bought by the federal reserve. To buy these T-bills, the fed prints money, which causes the money supply to increase and the domestic interest rate to fall.

Because this increase in US money supply has no effect on foreign interest rates, there is now an interest rate differential between US and foreign debt. Investors can get a higher interest rate by buying foreign debt, so they sell US assets in order to buy foreign assets, and in doing so bid down the price of US currency and bid up the price of foreign currency. This is known as arbitrage and it is the mechanism by which the exchange rate equilibrates interest rate differentials.

Demand for US money has fallen and demand for foreign money has risen, and therefore the price of US money relative to foreign money (the exchange rate) also changes. US currency becomes cheaper relative to foreign currency (depreciates).

[The link between military spending and dollar value is the Interest Rate parity condition,

R=R* + (E'-E)/E

where R is the domestic interest rate, R* is the foreign interest rate, E' is the expected future exchange rate, and E is the exchange rate. This essentially says that the exchange rate adjusts to equilibrate interest rate differentials across borders.]

http://74.125.153.132/search?q=cache:YLGn9zKzPJ0J:answers.yahoo.com/question/index%3Fqid%3D20090509083830AAvN9GE+dollar+value+military+spending+correlation&cd=1&hl=en&ct=clnk

donfletch… While it is easy to agree that drastic action is inadvisable at most junctures, and certainly at current juncture, and while your ideas on debt reduction carry weight (if actually carried out, which all doubt to see), you haven’t commented beyond short- to medium-term on military spending.

Do you truly believe that this industry offers the long-term return prospects that merit continuation in these exhorbitant investment trends? What say you?
correction: exorbitant

The nationalistic objective right now is to keep the US dollar in decline relative to outside currencies. This is first and foremost to correct trade imbalances. But it also induces those who hold US debt to offer to sell it for less, thus reducing US debt by inflation.

Yes, getting people to sell US bonds at a discount does cut US debt as readily as taxing and paying that money to buy bonds at a premium.

USA does not want its currency to go into free fall, but just on a soft landing course. Using new currency rather than selling bonds to the world to finance military adventurism is helpful only insofar as it keeps the military-industrial complex working and so happy. Cutting that spending would put a lot of angry workers on the streets. Did we think 8% unemployment was bad?

A non-dividend paying stock currently sells for 100. One year from now the stock sells for 110. The risk-free rate, compounded continuously, is 6%. The stock is purchased in the following manner:
• You pay 100 today
• You take possession of the security in one year
Which of the following describes this arrangement?
A. Outright purchase
B. Fully leveraged purchase
C. Prepaid forward contract
D. Forward contract
E. This arrangement is not possible due to arbitrage opportunities

Answer is C

All four of answers A-D are methods of acquiring the stock. The prepaid forward has the payment at time 0 and the delivery at time T.

"… the xyz Fund is a multi-strategy portfolio composed of core arbitrage and relative value strategies…"

I think you are misreading the sentence. "Core" applies not to "arbitrage", but to "strategies". The complete sentence, if I remember correctly, was:

[Quote]

…the XYZ Fund is a multi-strategy portfolio composed of core arbitrage and relative value strategies with a main focus on G-10 countries complemented on an opportunistic basis by directional managers that fit within the overall market neutrality of the portfolio.

[End of quote]

So the fund has two core strategies (arbitrage and relative value), which are complemented by opportunistic investments.

Now, the question still remains as to what arbitrage and relative value are.

Arbitrage is an attempt to make risk-free profit from relative mispricing of two or more (usually related) securities. There are many different arbitrage strategies that may involve different bonds of the same issuer, or stock options and underlying stocks, or a convertible bond and underlying stock, or a financial instrument and a futures contract on it.

Relative value is a strategy that involves buying a security believed to be undervalued and selling a similar security that is believed to be overvalued. Quite often, relative value bets are placed on two stocks in the same industry. Say, you believe that Google has better prospects than Yahoo!, so you buy Google and short Yahoo! This way, you isolate yourself from both market risk and industry-specific risk.

OK, personally I think there is some truth in EMH and that you can’t predict the big financial markets. But, arbitrage seems a little bit underrated by EMH. I am not sure if Prof. Fama has stated this in his original thesis back in the 70s, but you will find many "official studies" online(and in your university) that in the EMH world arbitrage doesn’t exist or when it occurs – it lasts for just a few seconds. OK….but just a "minor detail" that we have something called "high frequency trading" – Yes, you are right – "a few seconds are NOT problem for a high frequency computer". Actually, below I give you a few examples(without formulas and sophisticated code – just easy to understand arguments), as to why APT, MPT, EMH and all these abbreviations fail when it comes to arbitrage:

1. Arbitrage exists for just 2-3 seconds?:
See above ^…high frequency trading. Also, see this very interesting study from Oxford which not only disproves EMH but even its "refined version" – the Adaptive Market Hypothesis: AMH (too many abbrevations already…funny). So:

http://www.nuffield.ox.ac.uk/users/murphya/Arbitrage%20Opportunities%20in%20Nasdaq%20Stocks.pdf

2. You cannot profit from a carry trade, due to large market risk?
Fail. You can very easily: a) Go long on XAU/USD or vice versa, short it. b) Hedge the market risk with a comex gold futures gold contract. c) Receive the tom rollover on the XAU/USD.
At the end – you end up with no market risk and 3%(or more) leveraged inter market rate. How much is that since both your futures and xauusd forex are margined? You are right: over 50% interest yearly without any market and default risk, the % obviously depends on your broker and how much your forex position is leveraged. The comex gold is an exchange defined initial/maintenance variance margin.
You can make a similar trade with cfd/stocks.

3. Options/betting markets are very efficient:
Fail. With some persistence you can easily find a broker with call/put option sell premium higher than other broker with option buy premium lower, on OTC option markets. You are obviously hedged when buying at the lower price and receiving higher premium at the other broker. Problem here is that there is market risk – but only "virtually", since you cannot lose even if one of the positions is closed. Of course you can do the same in betting markets when the odds summed on -1th power are below 1.

There some other examples.

Point is that when you read about arbitrage you read only about "buy microsoft stock in london and sell it in new york when prices differ" – which is complete ballooney. Not only this type of "Arbitrage" doesn’t happen – but it’s practically nearly impossible to make money from this even when it happens. The other type that you will read about online is the "triangular arbitrage" with 3 currencies – which occurs once in a millenium.

The first examples however are much more practical, if not shocking since some of them exist for quite some time and not even 2-3 seconds. Which means that most "arbitrageurs" are actually stupid not to exploit them, despite being a public knowledge.

I thought to go on details with formulas, links, references, computer code, etc. in this topic…but I am lazy and busy now .

Thanks!

https://riselux.com

I like your question. I trade in the financial markets and it would appear under the strong version of the EMH arbitrage isn’t possible. However, I don’t believe economists look to EMH as a perfect model but merely an approximation. Much like the rational expectations hypothesis only partially explains the slope of the yield curve; one needs to factor in risk premium to derive the complete explanation. Similarly EMH partially explains the price action we observe in markets. Arbitrage assists in the efficiency of markets by facilitating the flow of capital into its most resourceful uses.

"Statistical Arbitrage" usually means finding gaurateed odds on any result ie: regardless of the result you show a profit by investing two different large sums of money on each outcome. The best way to do this is say a Tennis Match you back both players to win with different Bookies getting the best odds for each player wagering money so you can,t loose whoever wins.

Don,t know weater you wanted to know that.

Arbitrage is French.

sports arb software required details will be provided have tried several online firms for contract programmers with no luck

Best place to find programmers and other experts is GetAFreelancer:

http://www.nettrafficsecrets.com/res/GAF

Just create a project and write everything you need and programmers will come to you and offer their prices. Choose programmer with good feedback and good price. Also, because of GetAFreelancer’s escrow service, you don’t have to pay anything until the software you need is completed and running to your satisfaction.

Best regards,

hi,
if i wana arbitrage option in different exchanges(like nikkie, uk exchange) what broker should I choose?

is it possible to arbitrage option in US exchanges..i have found only one exchange CBOE with option quotes.wht other exchanges list options?please let me know..what i meant to ask is how is it possible to arbitrage option with different exchange.?
so if your not a trading house and dont have big capital you cant arbitrage?

First, there isn’t going to be that much to arbitrage, since the dealers all put in the same Black-Scholes valuation formula into their computers.

Second, the dealers are members of the exchanges, so they don’t go through brokers and pay commissions. If a difference does creep in the dealers will get it before it gets wide enough for you to show a profit after covering your commissions.

Third, arbitrage is a business of small price differences. The only way anybody can make any money is by doing high volume. Unless you have the money to do 1000s of contracts at a time for 100,000s of shares, forget it. Of course, if you had this kind of money, you could buy your own exchange membership.

What exactly is arbitrage?

No its not. Its just for profit companies.