Periodic Sequences of Arbitrage: A Tale of Four Currencies

Rod Cross, Victor Kozyakin (), Brian O'Callaghan (), Alexei Pokrovskii () and Alexey Pokrovskiy ()
Additional contact information
Victor Kozyakin: Institute for Information Transmission Problems, Russian Academy of Sciences,Bolshoj Karetny lane 19, Moscow 127994 GSP-4, Russia
Brian O'Callaghan: Department of Applied Mathematics University College Cork, Ireland
Alexei Pokrovskii: Department of Applied Mathematics University College Cork, Ireland
Alexey Pokrovskiy: London School of Economics and Political Science

No 1019, Working Papers from University of Strathclyde Business School, Department of Economics

Abstract: This paper investigates arbitrage chains involving four currencies and four foreign ex-change 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.

Keywords: Limits to arbitrage; Four currencies; Recurrent sequences; Asynchronous systems (search for similar items in EconPapers)
JEL-codes: C60 D82 F31 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2010-10
New Economics Papers: this item is included in nep-ifn
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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:str:wpaper:1019

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