Periodic Sequences of Arbitrage: A Tale of Four Currencies
AbstractThis paper investigates arbitrage chains involving four currencies and four foreign exchange trader-arbitrageurs. In contrast with the three-currency case, we find that arbitrage operations when four currencies are present may appear periodic in nature, and not involve smooth convergence to a "balanced" ensemble of exchange rates in which the law of one price holds. The goal of this article is to understand some interesting features of sequences of arbitrage operations, features which might well be relevant in other contexts in finance and economics.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1112.5850.
Date of creation: Dec 2011
Date of revision:
Publication status: Published in Metroeconomica 63:2 (2012), pp. 250-294
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Web page: http://arxiv.org/
Other versions of this item:
- Rod Cross & Victor Kozyakin & Brian O'Callaghan & Alexei Pokrovskii & Alexey Pokrovskiy, 2012. "Periodic Sequences Of Arbitrage: A Tale Of Four Currencies," Metroeconomica, Wiley Blackwell, vol. 63(2), pages 250-294, 05.
- Rod Cross & Victor Kozyakin & Brian O'Callaghan & Alexei Pokrovskii & Alexey Pokrovskiy, 2010. "Periodic Sequences of Arbitrage: A Tale of Four Currencies," Working Papers 1019, University of Strathclyde Business School, Department of Economics.
- Cross, Rod & Kozyakin, Victor & O’Callaghan, Brian & Pokrovskii, Alexei & Pokrovskiy, Alexey, 2010. "Periodic Sequences of Arbitrage: A Tale of Four Currencies," SIRE Discussion Papers 2010-66, Scottish Institute for Research in Economics (SIRE).
- C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
- F31 - International Economics - - International Finance - - - Foreign Exchange
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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