## 📚 Core Frameworks & Methodologies

### 1. The Arbitrage Viability Filter (AVF)

Apply this 7-gate checklist to every opportunity before deep analysis:

| Gate | Question | Fail Condition |
|------|----------|----------------|
| G1 — Existence | Is there a measurable price differential? | No quantifiable spread |
| G2 — Magnitude | Does gross spread exceed minimum threshold (typically >50-100 bps depending on asset)? | Spread too thin |
| G3 — Costs | Do all-in costs consume <70% of gross spread? | Net edge ≤ 0 |
| G4 — Liquidity | Can required size execute without moving the market >20% of spread? | Illiquidity kills edge |
| G5 — Timing | Is holding period within user's constraint and capital cost? | Duration mismatch |
| G6 — Accessibility | Can user access all legs (account, jurisdiction, instrument)? | Structural blocker |
| G7 — Persistence | Has spread existed long enough to suggest it's not a data error? | Flash artifact |

**Pass ≥5 gates** → Proceed to Deep Dive. **Pass <5** → Scout verdict with specific gate failures.

### 2. Cost Stack Model (CSM)

Build the full cost stack before any return calculation:

```
Leg 1 Costs: entry fee + slippage + market impact
Leg 2 Costs: hedge fee + slippage + basis risk buffer
Bridge Costs: withdrawal + deposit + settlement delay
Carry Costs: funding rate × days + borrow rate × days
FX Costs: conversion spread + wire fees
Tax Drag: estimated withholding/capital gains (flag as assumption)
Opportunity Cost: risk-free rate × capital × time
─────────────────────────────────
Total Cost Stack (TCS)
Net Edge = Gross Spread − TCS
```

### 3. Execution Pathway Mapping (EPM)

For each leg, document:

- **Instrument**: Ticker, contract type, venue
- **Side**: Long / Short / Buy / Sell
- **Size**: Units and notional
- **Timing**: T+0, T+1, concurrent vs. sequential
- **Settlement**: Cash, physical, margin
- **Dependency**: Which legs must complete before next leg starts

Represent complex paths as numbered sequences with parallel legs noted:

```
Step 1 [T+0]: Buy spot BTC on Exchange A
Step 2 [T+0, parallel]: Short BTC-PERP on Exchange B
Step 3 [T+1]: Monitor funding; rebalance if delta drifts >2%
Step 4 [Exit trigger]: Close when funding net + basis < threshold
```

### 4. Risk Matrix Template (RMT)

| Risk Category | Description | Probability | Impact | Mitigation | Residual |
|---------------|-------------|-------------|--------|------------|----------|
| Execution | Leg failure / partial fill | | | Limit orders, legging protocol | |
| Liquidity | Cannot exit at modeled price | | | Size limits, venue diversification | |
| Counterparty | Exchange/broker default | | | Tier-1 venues, position limits | |
| Regulatory | Rule change kills strategy | | | Jurisdiction review, legal counsel | |
| Model | Assumption error in costs/timing | | | Sensitivity analysis ±20% | |
| Tail | Black swan correlation event | | | Stop-loss, max drawdown cap | |

### 5. Opportunity Ranking Score (ORS)

When comparing multiple theses, score each 1-10 on:

- **Net Edge** (weight: 30%)
- **Capital Efficiency** (return per dollar locked, weight: 20%)
- **Execution Simplicity** (weight: 15%)
- **Liquidity** (weight: 15%)
- **Persistence / Edge Half-Life** (weight: 10%)
- **Regulatory Cleanliness** (weight: 10%)

Present as a ranked table with weighted composite score.

### 6. Domain-Specific Playbooks

#### Crypto Funding Rate Arbitrage
- Monitor: funding rate differential between venues
- Key costs: trading fees (4 legs minimum), withdrawal times, hot wallet risk
- Key risks: delta drift, exchange downtime, negative funding cascade

#### ETF Premium/Discount
- Monitor: NAV vs. market price, creation/redemption mechanism
- Key costs: AP basket costs, brokerage fees, timing
- Key risks: premium persistence beyond historical norms (may signal structural change)

#### Geographic FX Arbitrage
- Monitor: onshore/offshore rate, NDF-implied vs. spot
- Key costs: conversion fees, capital immobility cost, regulatory friction
- Key risks: capital control enforcement, sudden policy shifts

#### Merger Arbitrage
- Monitor: deal spread, regulatory timeline, financing conditions
- Key costs: borrow on short leg, dividend capture adjustments
- Key risks: deal break, timeline extension, competing bidder distortion

#### Statistical Pairs Trading
- Monitor: z-score of spread, half-life of mean reversion
- Key costs: double borrow, continuous rebalancing
- Key risks: regime shift / structural break in correlation

### 7. Red Team Protocol

When challenging a thesis, systematically attack:

1. **Data integrity** — Is the observed spread real or a stale quote?
2. **Survivorship** — Is user only seeing opportunities that already failed silently?
3. **Adverse selection** — Why is the counterparty willing to take the other side?
4. **Capacity** — Does edge scale or collapse at meaningful size?
5. **Reflexivity** — Will the act of exploiting the spread destroy it?
6. **Historical analogue** — Has this exact structure failed before? When?

### 8. Key Formulas Reference

- **Annualized Return**: `(1 + net_return)^(365/holding_days) − 1`
- **Sharpe Estimate**: `(annualized_return − risk_free_rate) / annualized_volatility`
- **Break-even Spread**: `TCS / notional × 100%`
- **Capital Efficiency**: `net_return / peak_capital_deployed`
- **Hedge Ratio**: `Δportfolio / Δhedge_instrument`
- **Basis**: `Futures Price − Spot Price`
- **Funding Cost (crypto)**: `position_size × funding_rate × periods`