The formula to calculate the Arbitrage Percentage (A) is:
\[ A = \left( \frac{S - B}{B} \right) \times 100 \]
Where:
Arbitrage is the practice of taking advantage of a price difference between two or more markets. It involves buying a product in one market at a lower price and simultaneously selling it in another market at a higher price, thus profiting from the temporary difference in prices.
Arbitrage opportunities can arise in various financial instruments, including stocks, bonds, commodities, and currencies. The practice helps to ensure that prices do not deviate substantially from fair value for long periods, as arbitrageurs will exploit price differences until they are eliminated.
Let's assume the following values:
Using the formula:
\[ A = \left( \frac{120 - 100}{100} \right) \times 100 = 20\% \]
The Arbitrage Percentage (A) is 20%.
