Detecting and identifying arbitrage in the spot foreign exchange market

Document Type

Article

Publication Date

1-2-2020

Abstract

We propose a theoretical framework for the detection and identification of triangular arbitrage opportunities between currency exchange rates in the spot foreign exchange market. We obtain sufficient conditions for the exclusion of triangular arbitrage opportunities in the setting of non-trivial transaction costs in terms of the currency rates of the market under consideration. Then we propose an efficient computational approach which can detect triangular arbitrage opportunities in real time. Finally, we consider numerical studies that utilize spot currency exchange rate quotes to substantiate and present applications of the theoretical findings as well as to demonstrate the efficiency of the proposed computational arbitrage detection and identification methods.

Identifier

85074835229 (Scopus)

Publication Title

Quantitative Finance

External Full Text Location

https://doi.org/10.1080/14697688.2019.1639801

e-ISSN

14697696

ISSN

14697688

First Page

119

Last Page

132

Issue

1

Volume

20

Grant

19-28231X

Fund Ref

National Science Foundation

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