Hedge Funds Leverage Derivatives Arbitrage for Low-Risk Returns Amid Market Efficiency
Derivatives arbitrage, once a straightforward pursuit of risk-free profits from price discrepancies, has evolved into a sophisticated game dominated by institutional players. Hedge funds now rely on advanced technology and vast capital to exploit fleeting opportunities, ensuring markets remain efficient while securing low-volatility returns.
The rise of computerized trading systems has all but erased traditional arbitrage opportunities for retail investors. Institutional strategies have shifted toward market-neutral and relative value trades, prioritizing Sharpe ratio optimization over pure risk-free gains. This evolution underscores the relentless march of financial innovation.