"arbitrage" is not risk-free. Its profits materialize if the spread, which exists as a result of the risk that the merger will not be consummated at its original terms, eventually narrows. Risk arises from the possibility of deals failing to go through or not being consummated within the timeframe originally indicated. The risk arbitrageur must be aware of the risks that threaten both the original terms and the ultimate consummation of the deal. These risks include price cuts, deal extension risk and deal termination. A price cut would lower the offer value of the target's shares, and the arbitrageur could end up with a net loss even if the merger is consummated. An unexpected extension to the deal completion timeframe lowers the expected annualized return which in turn causes a decline in the stock to compensate assuming the probability of the deal completing remains constant. However, the majority of mergers and acquisitions are not revised. Therefore, the arbitrageur need only concern himself with the question of whether the deal will be consummated according to its original terms or terminated. Deal termination can occur for many reasons. These reasons may include either party's inability to satisfy conditions of the merger, a failure to obtain the requisite shareholder approval, failure to receive antitrust and other regulatory clearances, or some other event which may change the target's or the acquirer's willingness to consummate the transaction. Such possibilities put the risk in the term risk arbitrage. Additional complications can arise on a deal-by-deal basis. An example includes collars. A collar occurs in a stock-for-stock merger, where the exchange ratio is not constant but changes with the price of the acquirer. Arbitrageurs use options-based models to value deals with collars. The exchange ratio is commonly determined by taking the average of the acquirer's closing price over a period of time (typically 10 trading days prior to close), during which time the arbitrageur would actively hedge his position in order to ensure the correct hedge ratio. A 2010 study of 2,182 mergers between 1990 and 2007 experienced a break rate of 8.0%. A study conducted by Baker and Savasoglu, which replicated a diversified risk arbitrage portfolio containing 1,901 mergers between 1981 and 1996, experienced a break rate of 22.7%. Market risk Several authors find that the returns to risk arbitrage are somewhat uncorrelated to the returns of the stock market in typical market environments. However, risk