Periodic Sequences of Arbitrage: A Tale of Four Currencies

Rod Cross, Victor Kozyakin, O’Callaghan, Brian, Alexei Pokrovskii and Alexey Pokrovskiy

No 2010-66, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: This paper investigates arbitrage chains involving four currencies and four foreign exchange trader-arbitrageurs. In contrast with the three-currency case, we fi nd 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.

Keywords: Four currencies; Limits to arbitrage; Recurrent sequences; Asynchronous systems (search for similar items in EconPapers)
Date: 2010
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http://hdl.handle.net/10943/177
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Related works:
Journal Article: PERIODIC SEQUENCES OF ARBITRAGE: A TALE OF FOUR CURRENCIES (2012)
Working Paper: Periodic Sequences of Arbitrage: A Tale of Four Currencies (2011)
Working Paper: Periodic Sequences of Arbitrage: A Tale of Four Currencies (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:edn:sirdps:177

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