The ABC’s of Risk Arbitrage - Profiting from Corporate Mergers, Acquisitions and Liquidations

Arbitrage (sometimes called “risk arbitrage” or “merger arbitrage”) is a special type of investment operation that is meant to generate profit with little or no risk. By taking advantage of special situations that arise in the security markets from time to time, an investor can exploit price discrepancies created by special situations, increasing his net worth regardless of whether the market itself advances. This article discusses two of the more common arbitrage operations - those arising from mergers and liquidations – as well as the formula necessary to value the potential return on capital employed. More...