Understanding Arbitrage: An Intuitive Approach to Financial Analysis is a commendable effort of Randall S Billingsley to provide insight into arbitrage, arbitrage process, arbitrage situations and arbitrageurs or simply `arbs'. The book defines pure arbitrage as a riskless pursuit of profits resulting from mispricing of assets. Arbitrage is self-financing and does not require any investment from the investor.

According to the author, arbitrage is a result of violation of "Law of One Price". The law states that any asset or a basket of assets will have price equal to any asset or basket of assets which provides the same returns as itself. Hence, equivalent combination of assets providing the same outcome should sell for the same price. Any situation in which either one of the assets is charged more than the other will create an arbitrage opportunity wherein investors will sell the overpriced asset and invest in the underpriced one providing the same returns. This will increase the demand and hence, the price of the underpriced asset and reduce the price of the overpriced one, as it is extensively sold, till both of them return to equilibrium. The author has also effectively explained the relationship between arbitrage and hedging and how hedging is a necessity to exploit an arbitrage situation.

Any arbitrage strategy has two key aspects viz., execution and convergence. Execution involves identification of arbitrage opportunity, developing the strategy, implementation and closing it down. Convergence looks into the movement of the disvalued asset prices to their appropriate prices and the time frame involved in the process. The introductory chapter also explains some basic arbitrage opportunities. The first opportunity exists when value of the portfolio as a whole does not equal to the sum of the values of the underlying assets i.e., the additive property is violated, and the second when the investors invest at zero or negative upfront investment (initial positive cash flow) and are still able to generate a positive future payoff. The absence of any such opportunities indicates that the asset prices are equal, hence market is in equilibrium.

Understanding Arbitrage, Intuitive Approach to Financial Analysis, commendable effort, provide insight into arbitrage, arbitrage process, arbitrage situations, arbitrageurs or simply arbs, defines pure arbitrag, riskless pursuit of profits, resulting from mispricing of assets, Arbitrage is self-financing, require any investment from the investor, arbitrage is a result of violation, Law of One Price, The law states, asset or a basket of assets, price equal to any asset, equivalent combination of assets, providing the same returns.