Skip to:
  1. Main navigation
  2. Main content
  3. Footer
Economic Commentary

Arbitrage: The Key to Pricing Options

Download pdf

Arbitrage has become associated in popular attitudes with the most ruthless and profit-driven of human impulses, but the opposite reputation might be more well-deserved. The ability to arbitrage is essential for the efficient operation of markets. An interesting application of the principle of arbitrage arose when it provided the breakthrough insight in economists’ solution to a formerly intractable problem: how to properly price the emergent financial instruments known as options.

01.01.2004ISSN 2163-3738 EC 1/1/2004

The views authors express in Economic Commentary are theirs and not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System. The series editor is Tasia Hane. This paper and its data are subject to revision; please visit clevelandfed.org for updates.

Suggested Citation

Nosal, Ed, and Tan Wang. 2004. “Arbitrage: The Key to Pricing Options.” Federal Reserve Bank of Cleveland, Economic Commentary 1/1/2004.

This work by Federal Reserve Bank of Cleveland is licensed under Creative Commons Attribution-NonCommercial 4.0 International