Synthetic Securities
A different way to look at arbitrage relationships is to recognize that they define securities. That is, even if a put option were not available in the financial markets, it would be easy for you to manufacture one (assuming minimal transaction costs, of course). For example, return to the put-call parity relationship. It states that [...]
Corporate Hedging
Sometimes, corporations or individuals want to avoid exposure to changes in the value of certain assets. For example, an American corporation may have sold some product to a German corporation for payment in Euros in six months. But the U.S. corporation may prefer to lock in the value of the Euro payment to be received [...]
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