Arbitrage in foreign exchange markets within the context of a transactional algebra
AbstractThis paper sets forth the foundations for a transactional approach for the performance of arbitrage in foreign exchange markets. Firstly, we review both the standard model of financial arbitrage and the so-called covered-interest arbitrage environment, and we also lay bare striking shortcomings in these points of view, mainly grounded on a wide- ranging empirical evidence. Next, we move on to what we have labeled in previous research working papers a transactional algebra, from which we expand on its main tools of analysis, namely differential rates, residual information sets, arbitrage gaps and transaction costs functions. Afterwards, we establish and prove the minimal conditions under which a successful arbitrage can be carried out within a transactional algebra.
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Bibliographic InfoPaper provided by Universidad del CEMA in its series CEMA Working Papers: Serie Documentos de Trabajo. with number 290.
Date of creation: Jun 2005
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More information through EDIRC
transactional algebras; arbitrage; covered-interest arbitrage; differential rates; residual information sets; arbitrage gaps.;
Find related papers by JEL classification:
- F30 - International Economics - - International Finance - - - General
- F31 - International Economics - - International Finance - - - Foreign Exchange
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-14 (All new papers)
- NEP-FIN-2005-06-14 (Finance)
- NEP-FMK-2005-06-14 (Financial Markets)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rodolfo Apreda, 2000. "A transaction costs approach to financial assets rates of return," CEMA Working Papers: Serie Documentos de Trabajo. 161, Universidad del CEMA.
- Rodolfo Apreda, 2004. "Differential rates, residual information sets and transactional algebras," CEMA Working Papers: Serie Documentos de Trabajo. 256, Universidad del CEMA.
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