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Spontaneous symmetry breaking of arbitrage

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  • Choi, Jaehyung

Abstract

We introduce the concept of spontaneous symmetry breaking to arbitrage modeling. In the model, the arbitrage strategy is considered as being in the symmetry breaking phase and the phase transition between arbitrage mode and no-arbitrage mode is triggered by a control parameter. We estimate the control parameter for a momentum strategy with real historical data. The momentum strategy aided by symmetry breaking shows stronger performance and has a better risk measure than the naive momentum strategy in U.S. and South Korean markets.

Suggested Citation

  • Choi, Jaehyung, 2012. "Spontaneous symmetry breaking of arbitrage," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(11), pages 3206-3218.
    • Handle: RePEc:eee:phsmap:v:391:y:2012:i:11:p:3206-3218
    DOI: 10.1016/j.physa.2012.01.031
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    Cited by:

    1. Choi, Jaehyung & Kim, Young Shin & Mitov, Ivan, 2015. "Reward-risk momentum strategies using classical tempered stable distribution," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 194-213.
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    3. Jaehyung Choi & Sungsoo Choi & Wonseok Kang, 2012. "Momentum universe shrinkage effect in price momentum," Papers 1211.6517, arXiv.org.
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    5. Choi, Jaehyung, 2014. "Physical approach to price momentum and its application to momentum strategy," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 415(C), pages 61-72.

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