Samuelson Model

The Samuelson Model explains how different financial markets are interconnected through arbitrage, which is the practice of taking advantage of price differences to make risk-free profits. It shows that spot prices (current prices) and future prices in one market should align with those in another market to prevent easy profit opportunities. Essentially, the model ensures that if there’s a price mismatch between the spot market and the futures market, traders will act to correct it, pushing prices back into equilibrium. This helps maintain consistency and efficiency across markets, ensuring no arbitrage opportunities persist for long.