Compared to the underlying spot market, the derivatives market will have
higher liquidity.
Derivatives MCQ - Derivatives Section 1
Derivatives can be combined with other derivatives or underlying assets to
form hybrids. Derivatives can be issued on a variety of such diverse
underlyings such as weather, electricity, and disaster claims.
Arbitrage forces equivalent assets to have a single price. There is nothing
called the law of similar prices or the law of limited profitability.
Prices converge because of the heavy demand for the cheaper asset and
the heavy supply of the more expensive asset.
Arbitrage is risk-free and requires no capital because selling the overpriced
asset produces the funds to buy the underpriced asset.
