Program trading gives rise to several other investment (or trading) activities, such as portfolio insurance (which we discussed in the previous chapter) and index arbitrage. We discuss the latter...

Program trading gives rise to several other investment (or trading) activities, such as portfolio insurance (which we discussed in the previous chapter) and index arbitrage. We discuss the latter next. Index arbitrage refers to the investment strategy that seeks to exploit mispricing between the theoretical and the actual values of indexes such as the S&P 500.