Why all apparent arbitrage opportunities cannot be exploited

Question

Explain the reasons why all apparent arbitrage opportunities cannot be exploited.

Answer 1

Not all apparent arbitrage opportunities can be exploited into practice. If you notice such an opportunity in quoted prices upon a screen opposite you then you are likely to get that while you try to take advantage of them they only evaporate. Here are some reasons for this.

• Quoted prices are not trade-able and wrong
• Stock and option prices were not quoted synchronously
• Here a bid-offer spread you have not accounted for
• Your model is incorrect, or there is a risk factor that you have not accounted for.