Genetic algorithm for arbitrage with more than three currencies

Adrián Fernández-Pérez (), Fernando Fernández-Rodríguez () and Simon Sosvilla-Rivero
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Adrián Fernández-Pérez: Universidad de Las Palmas de Gran Canaria
Fernando Fernández-Rodríguez: Universidad de Las Palmas de Gran Canaria

No 12-04, Working Papers from Asociación Española de Economía y Finanzas Internacionales

Abstract: We develop a genetic algorithm that is able to find the optimal sequence of exchange rates that maximizes arbitrage profits with more than three currencies, being both the triangular arbitrage and the direct exchange rate two special cases of the proposed algorithm. Applying the algorithm to the most traded currencies, we find average profits ranking from 4.5083% to 0.3162% for changing 1 USD for EUR with respect to the direct exchange rate, for different transaction costs, during the period October 2000- April 2012. Our results also suggest that the arbitrage profits increased just after the subprime crisis in summer of 2007 and that they are higher when the market is less liquid.

Keywords: Arbitrage; Foreign Exchange Market; Genetic Algorithm (search for similar items in EconPapers)
JEL-codes: C45 G14 G15 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2012-07
New Economics Papers: this item is included in nep-cmp
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Citations: View citations in EconPapers (1)

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