Final_1.pdf

In conclusion, it would help to indicate exactly what the evaluation cri-
terion would be to the broker. This will hopefully ensure that the execution
was completed as intended. The possibilities are

1.Conservative trading. Ensure that there is at least one way to pair the

trade list such that each pair satisfies the spread criterion.

2.Aggressive trading. Ensure that the average spread achieved is the same

as or better than the specified spread value and therefore to the extent

possible the speed of execution matters.

160 RISK ARBITRAGE PAIRS

FIGURE 10.2 Redundant Matchings.

100 at

$19.0

100 at

$19.5

100 at

$20.0

50 at

$19.0

150 at

$18.5

150 at

$18.0

100

50

Configuration A:

excess 50 shares of target at $18.5

Configuration B:

excess 50 shares of target at $19.0

Configuration C:

excess 50 shares of target at $18.0

100

50

Bidder Trades Target Trades

100 at

$19.0

100 at

$19.5

100 at

$20.0

50 at

$19.0

150 at

$18.5

150 at

$18.0

100

50

100

50

Bidder Trades Target Trades

100 at

$19.0

100 at

$19.5

100 at

$20.0

50 at

$19.0

150 at

$18.5

150 at

$18.0

100

50

100

50

Bidder Trades Target Trades