# Price Convergence ⎊ Area ⎊ Resource 2

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## What is the Phenomenon of Price Convergence?

Price convergence describes the market phenomenon where the price of a derivative contract, such as a futures contract or an option, gradually aligns with the spot price of its underlying asset as the contract approaches its expiration date. This convergence occurs because the derivative's value at expiration must equal the value of the underlying asset. The principle ensures that derivatives markets remain tethered to the underlying spot market.

## What is the Arbitrage of Price Convergence?

The primary driver of price convergence is arbitrage activity. As the derivative price deviates from the spot price near expiration, arbitrageurs exploit this discrepancy by simultaneously buying the cheaper asset and selling the more expensive one. This activity forces the prices to converge, eliminating the arbitrage opportunity and ensuring market efficiency.

## What is the Expiration of Price Convergence?

At the moment of expiration, the price of a cash-settled derivative contract is typically determined by the spot price of the underlying asset at that specific time. For physically settled contracts, the derivative holder receives the underlying asset, making the prices identical. This final convergence point is crucial for determining the final profit or loss for derivatives traders.


---

## [Equilibrium Pricing](https://term.greeks.live/definition/equilibrium-pricing/)

## [Convergence](https://term.greeks.live/definition/convergence/)

## [Basis Convergence](https://term.greeks.live/definition/basis-convergence/)

## [Perpetual Protocol Funding Rate Risk](https://term.greeks.live/term/perpetual-protocol-funding-rate-risk/)

## [Futures Expiration](https://term.greeks.live/definition/futures-expiration/)

## [Perpetual Swap](https://term.greeks.live/definition/perpetual-swap/)

## [Statistical Arbitrage Techniques](https://term.greeks.live/term/statistical-arbitrage-techniques/)

## [Financial Market Efficiency](https://term.greeks.live/term/financial-market-efficiency/)

## [Funding Costs](https://term.greeks.live/term/funding-costs/)

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---

**Original URL:** https://term.greeks.live/area/price-convergence/resource/2/