Tick all those statements on arbitrage that are correct (and don't tick those that are incorrect). a. When constructing suitable betting strategies, the number m of outcomes of an event and the number ʼn of possible wagers are always the same. b. The arbitrage theorem essentially tells us that either there exists a risk-neutral distribution or there is an arbitrage opportunity. If there is an arbitrage opportunity then this implies that a risk-neutral distribution exists. d. In real markets there are ocasionally small arbitrage opportunities due to lack of information. e. If there is a sporting event with 3 different outcomes which have the odds o; = 1, 2, 3 then there is an arbitrage opportunity for a suitable betting strategy. C.

Which of the following assumptions of the Black-Scholes model are often violated in empirical data? O All of the other answers are correct. O Continuously-compounded returns on the underlying asset follow a normal distribution. O The volatility of the underlying asset is constant. O There are no jumps in the price of the underlying asset. O Trading in the underlying asset is continuous.

Derivatives are used in risk management because they _____.a. diversify risksb. hedge risksc. avoid risksd. none of the above

A Listen An example of the no-arbitrage principle holding would be when all risk-free investments offer investors: A) the same return B) negative returns C) positive returns D) zero return