medium · Market Microstructure mmf-core
Suppose the S&P 500 index is at $5,000 and the fair value of a 30-day futures contract is calculated at $5,020. Total round-trip transaction costs for index arbitrage are $3.0 index points, and the no-arbitrage band is centered on fair value with HALF of the round-trip cost ($1.5 points) allocated to each side.
Using this symmetric half-cost-per-side band, what is the lower arbitrage trigger point (the futures price at or below which an arbitrageur would buy futures and sell the cash basket)?
- $5,017.0
- $5,018.5
- $4,997.0
- $5,021.5
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