CMS pricing throws up arbitrage opportunity

Euro CMS option prices are out of kilter and offer an arbitrage opportunity because of inconsistencies between spread and single-rate cap pricing models, said a Nomura analyst who spotted a similar opportunity several years ago.

  • 27 Nov 2009

Fred Goodwin said in a widely-distributed research report that recent issuance of CMS floaters — including a Eu500m Nomura self-led trade — highlighted the disparity.

"Market segmentation is at the heart of the CMS triangle arbitrage opportunity, particularly at high strikes," he said.

He said that dealer positions created from ...

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