The Law/Suggestion/Anomaly of One Price

I geek out now and then for violations of the supposed “law” of one price — the cute idea that the same financial instrument will sell for the same price in all markets so long as there is an opportunity for arbitrage – so this example from Citigroup understandably caught my attention today.

When the markets closed last Friday, the cost of buying 1,000 shares of Citigroup in these three ways were (using price quotes from Yahoo and ignoring transaction costs):

Method  Cost

Simple                   $3,670

Preferred             $3,052

Synthetic             $3,160

Note: The preferred calculation is based on the Series F; other preferreds give slightly different values.  The synthetic is based on options that mature in September 2009 with a strike price of $4.

More here.

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