Cross-listed cross-currency assets and arbitrage with forwards and options
This work attempts to integrate the twin-structure of arbitrage operations in both securities and currency markets. By looking into cross-listed and cross-currency stocks in several exchanges, it is found that arbitrage is indeed a viable option, since price differences of the same assets exist in a numéraire currency at the same instant of time. Taking advantage of such arbitrage opportunities, profit is made first in the assets trade, and then the initial profit is churned further in an iterative arbitrage process in the currency market where arbitrage is covered by forward and option contracts.
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References listed on IDEAS
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- D. K. Ghosh, 1997. "Arbitrage with hedging by forward contracts: exploited and exploitable profits," The European Journal of Finance, Taylor & Francis Journals, vol. 3(4), pages 349-361.
- French, Kenneth R & Poterba, James M, 1991.
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- Kenneth R. French & James M. Poterba, 1991. "Investor Diversification and International Equity Markets," NBER Working Papers 3609, National Bureau of Economic Research, Inc.
- Ghosh, Dilip K, 1997. "Profit Multiplier in Covered Currency Trading with Leverage," The Financial Review, Eastern Finance Association, vol. 32(2), pages 391-409, May.
- Ghosh, Dilip K. & Ghosh, Dipasri, 2005. "Covered arbitrage with currency options: A theoretical analysis," Global Finance Journal, Elsevier, vol. 16(1), pages 86-98, August.
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