Arbitrage Research and Trading

0	Foreword & How to Use the "TG2" Series Most Profitably	i
0.1	Why the TG2 Series of Books?	ii
0.2	What is, and is not, important, and who is this for anyway?	iii
0.2.1	Who is this (book/Series) for?	iv
0.2.2	Pedagogical issues	v
0.2.3	Notation, Grammar, Spelling	vi
0.2.4	About Accompanying (free) software, and Commercial Software.	vii
0.2.5	About these books and relationship to ARTSchool	viii
0.3	Future direction & Road Map for the Series.	ix
0.4	About the Authors	x
0.4.1	Invitation for Contribution	x

1	Introduction to the "TG2… Read Me First" book	1
1.1	Feeds, Screens, and Calculators	2
1.2	What we do for a living	3

PART I: Market Basics

2	Market Basics - Overview	5
2.1	Basics of Finance, Trading, and Business (in the Real World)	5
2.1.1	Business Mandate, and Overview of Strategies & Tools for Profit & Risk	6
2.1.2	Cash is King - "show me the money"	9
2.1.3	Supply/Demand, and Prices	11
2.1.4	The Participants & (Economic) Needs	15
2.1.5	Trading-floor/Trading-operation layout	35
2.1.6	Forecasting vs. Arbitrage & (Forward) Fair Value	41
2.1.7	Spot/Forward Arbitrage Example: 3M-Forward Ferraris	49
2.1.8	Cross-Market Arbitrage Example: Interest Rate Parity	53
2.1.9	Risk and Return	56
2.1.10	The Efficient Frontier and CAPM/APT	65
2.1.11	Holding Period Risk/Return and (Optimal) PaR	69
2.1.12	Reality Impact	76
2.1.13	What Role Does Economics Have in Trading?	78
2.1.14	What Role Does Mathematical Modelling Have in Trading?	81
2.1.15	Market Basics: Overview Summary - The Story so Far	83

3	Market Basics - The Trading Cycle, Trading Discipline, and Management	87
3.1	What/How/Why we trade: Transactions Basics	88
3.1.1	Asset Classes: Equities, IR/FX, and Commodities	88
i