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Title: Detecting arbitrage in the spot foreign exchange market Authors:  Stephen Taylor - New Jersey Institute of Technology (United States) [presenting]
Abstract: A theoretical and computational framework is proposed for the detection and identification of arbitrage opportunities among spot currency exchange rates. We obtain sufficient conditions for excluding the triangular arbitrage opportunities in a market with or without market frictions, i.e. transaction costs. Then, we propose an efficient computational approach not only to detect triangular arbitrage opportunities in real time but also to identify the combinations of currencies associated with the arbitrage. Finally, we discuss a graph theoretic formulation of the maximum arbitrage detection problem and present associated techniques used to identify the arbitrage magnitude. In numerical studies, we utilize empirical data of foreign currency exchange rates to substantiate our theoretical findings and demonstrate the efficiency of the proposed computational approach.