Risk Arbitrage in the Swedish Market – Evaluation with Contingent Claims

The thesis analyses a risk arbitrage portfolio in Swedish equities over 2611 trading days (132 months), to evaluate the ability of a risk arbitrage strategy to generate excess returns, alpha, in the Swedish market. It is found that risk arbitrage generates a significant alpha of 120 basis points per month, in a linear model and assuming CAPM holds. In a contingent claims framework, aiming to correctly price non-linearities observed in previous studies, and assuming Black-Scholes holds, I find that the monthly alpha is 51 basis points per month