Arbitraging Mispriced Assets with Separation Portfolios to Lessen Total Risk

Apreda, Rodolfo

doi:10.2139/ssrn.1403409

Abstract

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Arbitraging Mispriced Assets with Separation Portfolios to Lessen Total Risk

Rodolfo Apreda

University of CEMA

November 2001

Serie Documentos de Trabajo, Documento Nro. 203

Abstract:
This paper expands on a procedure to arbitrage mispriced assets against the benchmark provided by the Security Market Line, but using only separation portfolios to put up a feasible portfolio with the same beta as the mispriced asset and the least total risk among other alternative portfolios. Coming next, such arbitrage is dealt directly with one single separation portfolio, which grants that the total risk linked with the arbitrage portfolio equals the non-systematic risk conveyed by the mispriced asset.

Number of Pages in PDF File: 15

Keywords: arbitrage portfolios, separation portfolios, total risk, systematic risk

JEL Classification: G10, G11, G13

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Date posted: May 22, 2009

Suggested Citation

Apreda, Rodolfo, Arbitraging Mispriced Assets with Separation Portfolios to Lessen Total Risk (November 2001). Serie Documentos de Trabajo, Documento Nro. 203. Available at SSRN: http://ssrn.com/abstract=1403409 or http://dx.doi.org/10.2139/ssrn.1403409

Contact Information

Rodolfo Apreda (Contact Author)

University of CEMA ( email )

Department of Finance Room 612
Buenos Aires, C1054AAP
Argentina
5411 6314 3000 (Phone)
5411 4803 0429 (Fax)