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Periodic Sequences of Arbitrage: A Tale of Four CurrenciesRod CrossUniversity of Strathclyde, Glasgow - Strathclyde Business School - Department of Economics Victor Kozyakinaffiliation not provided to SSRN Brian O'Callaghanaffiliation not provided to SSRN Alexei Pokrovskiiaffiliation not provided to SSRN Alexey Pokrovskiyaffiliation not provided to SSRN May 2012 Metroeconomica, Vol. 63, Issue 2, pp. 250-294, 2012 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.
Number of Pages in PDF File: 45 Accepted Paper SeriesDate posted: April 3, 2012Suggested CitationContact Information
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