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Periodic sequences of arbitrage: a tale of four currencies

Cross, Rod and Kozyakin, Victor and O'Callaghan, Brian and Pokrovskii, Alexei and Pokrovskiy, Alexey (2012) Periodic sequences of arbitrage: a tale of four currencies. Metroeconomica, 63 (2). pp. 250-294. ISSN 0026-1386

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Identification Number: 10.1111/j.1467-999X.2011.04140.x

Abstract

This 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

Item Type: Article
Official URL: http://onlinelibrary.wiley.com/journal/10.1111/(IS...
Subjects: H Social Sciences > HG Finance
Date Deposited: 03 May 2012 10:40
Last Modified: 12 Apr 2013 10:18
URI: http://eprints.lse.ac.uk/id/eprint/43192

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