Economic Significance of Arbitrage Transactions in the Tesla Industry

Abstract

Arbitrage transactions have played a significant role in allowing Tesla to exploit the minor differences in price between its similar and identical assets in two or more markets. In this case, as an arbitrage trader, Tesla undertakes the responsibility of purchasing assets in one market and selling them out at the same period to pocket any differences between the two prices. In this paper, there are two main parts of arbitrage transactions. The first part is three methods that can be utilized to analyze the options prices. These methods are linear regression and random Walk Theory, and Black Scholes. Their functionalities, influences, and theory are demonstrated in this paper. When using Black Scholes to calculate desired options prices and figure it in linear regression, assuming time to the expiration date, volatility, and risk-free rate are the same. The estimated trend and outcome are stated and described in this paper. The second part is about arbitrage transactions based on option prices. The circumstances of arbitrage transactions used by Tesla are analyzed and the utilized method called fundraising is demonstrated, and its functionality is analyzed with data and facts to prove the significance of arbitrage transactions. The paper also points out it is possible to use black scholes to estimate option prices in linear regression graphs and random walk theory. Call and put options prices are related to stock prices. They all shared a similar trend when time flows. The true value of this research is that people do not need to simply use a single method to estimate values, but to combine them, use them together to better understand the estimation of prices.