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Arbitrage-free exchange rate ensembles over a general trade network

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  • Stan Palasek

Abstract

It is assumed that under suitable economic and information-theoretic conditions, market exchange rates are free from arbitrage. Commodity markets in which trades occur over a complete graph are shown to be trivial. We therefore examine the vector space of no-arbitrage exchange rate ensembles over an arbitrary connected undirected graph. Consideration is given for the minimal information for determination of an exchange rate ensemble. We conclude with a topical discussion of exchanges in which our analyses may be relevant, including the emergent but highly-regulated (and therefore not a complete graph) market for digital currencies.

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  • Stan Palasek, 2014. "Arbitrage-free exchange rate ensembles over a general trade network," Papers 1406.1547, arXiv.org.
    • Handle: RePEc:arx:papers:1406.1547
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    1. Mirowski, Philip, 2007. "Markets come to bits: Evolution, computation and markomata in economic science," Journal of Economic Behavior & Organization, Elsevier, vol. 63(2), pages 209-242, June.
    2. Soramäki, Kimmo & Bech, Morten L. & Arnold, Jeffrey & Glass, Robert J. & Beyeler, Walter E., 2007. "The topology of interbank payment flows," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 379(1), pages 317-333.
    3. Philip Mirowski, 1991. "Postmodernism and the Social Theory of Value," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 13(4), pages 565-582, July.
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    Cited by:

    1. Wilfredo L. Maldonado & Juan José Egozcue & Vera Pawlowsky‐Glahn, 2021. "No‐arbitrage matrices of exchange rates: Some characterizations," International Journal of Economic Theory, The International Society for Economic Theory, vol. 17(4), pages 375-389, December.

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