We provide a comprehensive empirical analysis on the implication of CDS-Bond basis arbitrage for the pricing of corporate bonds. Basis arbitrageurs introduce new risks such as funding liquidity and counterparty risk into the corporate bond market, which was dominated by passive investors before...

In traditional thinking, an arbitrageur will trade immediately once an arbitrage opportunity appears. Is this the best strategy for the arbitrageur or it is even better to wait for the best time to trade so as to achieve the maximum profit? To answer this question, this paper studies the optimal...

In a 1997 paper, Hansen and Jagannathan develop two pricing error measures for asset pricing models. The first measure is the maximum pricing error on given test assets, and the second measure is the maximum pricing error over all possible contingent claims. We develop a simulation-based...