An example of a ______ strategy is the mispricing of a futures contract that must be corrected by contract expiration.

A) market neutral
B) directional
C) relative value
D) divergence
E) convergence

Mispricing

The occurrence when the market price of a security does not accurately reflect its intrinsic or theoretical value, leading to potential buying or selling opportunities.

Futures Contract

Obliges traders to purchase or sell an asset at an agreed-upon price on a specified future date. The long position is held by the trader who commits to purchase. The short position is held by the trader who commits to sell. Futures differ from forward contracts in their standardization, exchange trading, margin requirements, and daily settling (marking to market).

Convergence Strategy

An investment strategy that involves profiting from the narrowing of a gap in the pricing of two or more assets.