The arbitrage tag has no wiki summary.
3
votes
1answer
111 views
Profiting from price discrepancies between stock exchanges
Here is an interesting video by Nanex: http://www.youtube.com/watch?&v=rB5jJuMP84E
Perhaps some of you have already seen something similar. It is an animation of the order routing. It shows 1/2 ...
-4
votes
0answers
49 views
Arbitrage: Difference Between Liquidity Taking and Liquidity Making [closed]
Liquidity Taking
If X is trading for 22 USD at Exchange-A and 20 USD at Exchange-B, someone can sell their X at ExchangeA and buy back X at Exchange-B for a 2 USD profit.
Liquidity Making
If ...
2
votes
1answer
67 views
Implied dividend estimation
I am looking at two different ways of estimating the expected / implied dividends from market data.
1. Dividend futures
I know that this asset class is not very liquid and might not be ...
0
votes
1answer
121 views
help me compare methods to compute one instrument price from another instrument price
Assume we have two instruments A and B. Also time is increasing from 1 to n. Let's say that ...
4
votes
1answer
228 views
Call option arbitrage opportunity
I am having trouble wrapping my head around some text provided to us by our lecturer (unfortunately he is currently unavailable). If we let $c$ be the price of a European call option, $S_0$ the ...
5
votes
1answer
110 views
Risk neutral valuation independent of $Q$?
This question is bothering me now for a while. Suppose given is a random payoff $f\in L^0(\mathcal{F}_T)$ at time $T$, where $L^0(\mathcal{F}_T)$ denotes the space of all $\mathcal{F}_T$-measurable ...
6
votes
1answer
107 views
Different definition of NFLVR
I attend a course in mathematical finance. In the first chapter we discus the absence of arbitrage in full generality. For this purpose we define the following sets:
...
0
votes
1answer
196 views
main arbitrage & statistical arbitrage concepts
can we please summarise here some of the basic concepts, tools used in arbitrage and statistical arbitrage in real life?
ARB: benefit from price difference on same asset
ARB: difference between ...
12
votes
0answers
1k views
How do different methods and techniques used in pairs trading compare?
I was going through the paper of Avellaneda (2008) on stat arb and I found it interesting that he uses asset returns vs. their respective ETFs to compute the s-score.
I am wondering if anyone has ...
2
votes
1answer
217 views
Multiple (linear) regression
I am looking for some inputs on a pair trading strategy that I am trying to improve with some semi-fundamental input.
The basic idea is to use multiple linear regression to estimate the price of a ...
3
votes
1answer
286 views
Understanding Passive Rebate Arbitrage
I was reading a BMO paper which offered the following example of passive rebate arbitrage:
"For example, if BBD.b is trading at $4.71 - ...
-4
votes
1answer
133 views
Show that convexity of call price as a function of the strike is violated [closed]
European call options with strikes 90, 100 and 110 on the same underlying asset and with the same maturity are trading for 22.50, 18.84 and 13.97 respectively. show that the convexity of the call ...
1
vote
2answers
230 views
.NET statistical packages recommendation
What open source or commercial .NET statistical package would you guys recommend? I am doing statistical arbitrage in options. The functions I need mainly are regressions, optimizations..etc. It would ...
5
votes
3answers
665 views
Why would a 6M LIBOR rate be significantly above 3M LIBOR, ED futures and swap rates?
Just was just looking at the various interest rates and noticed this:
...
3
votes
1answer
168 views
Sufficient conditions for no static arbitrage
In Carr and Madan (2005), the authors give sufficient conditions for a set of call prices to arise as integrals of a risk-neutral probability distribution (See Breeden and Litzenberger (1978)), and ...
3
votes
0answers
109 views
Arbitrage free price of a derivative when the price is collected over the lifetime of the derivative
Let $X_t$ be an american style financial derivative with random exercise time $T$
where $t$ and $T$ belongs to some finite set $A$.
Buying this derivative requires the buyer to pay $p_t$ up to time ...
2
votes
2answers
443 views
Usefulness of simultaneously buying triangular and multiple arbitrages on the Forex
I have a limited financial background but I'm trying to figure out the usefulness of buying size-n arbitrages (n > 3), and I wonder the kind of risks - if any - associated with such a strategy.
Say ...
-3
votes
1answer
314 views
Tutorial for working with tick data? [closed]
Can you recommend a good tutorial for working with tick data for the purpose of algorithmic trading?
Is the data normally stored in a database and only bits are read into memory at a time?
Is there ...
-4
votes
2answers
321 views
Is it already possible to do automated trading from your room? [closed]
Just curious. Automated trading using computer software. Parse market data and place orders automatically through a computer program running in your machine. Is it possible to do that as an individual ...
13
votes
2answers
570 views
Why isn't the Nelson-Siegel model arbitrage-free?
Assume $X_t$ is a multivariate Ornstein-Uhlenbeck process, i.e.
$$dX_t=\sigma dB_t-AX_tdt$$
and the spot interest rate evolves by the following equation:
$$r_t=a+b\cdot X_t.$$
After solving for $X_t$ ...
1
vote
1answer
305 views
Arbitrage between markets
I'm trying to understand how arbitrage works, but I'm having some difficulties based on some restrictions:
I have markets A, B and C.
The currencies that are traded are X <-> Y, and X <-> Z.
...
7
votes
1answer
251 views
calculating arbitrage-free ranges based off outright, spread, and fly prices
This may be more applied math rather than finance focused, but I'm curious about using linear algebra techniques for generating possible arbitrage signals among outright instruments and spreads/flies ...
5
votes
2answers
290 views
A few questions about signs of the Greek letters
Rho is the partial derivative of the value of call option, $C$, w.r.t the riskfree interest rate $r$: $$\rho \equiv \frac{\partial C}{\partial r}$$
In the standard B-S formula this term is positive, ...
2
votes
1answer
161 views
How often do ETF creation units baskets change?
Large institutions can swap baskets of underlying securities for ETF shares that can then be traded on an exchange as part of arbitrage between the price of the basket and the ETF share price. These ...
2
votes
1answer
195 views
Where are creation units baskets for ETFs published?
Where can the specification of a creation unit basket for an ETF be found? This information is needed for calculating the arbitrage possible between the ETF instrument itself and the creation unit ...
8
votes
1answer
818 views
What is the average Sharpe ratio of volatility arbitrage funds?
Where can I get data on performance metrics for volatility arbitrage funds? I am trying to compare the Sharpe ratio of my strategy to those of the major players.
18
votes
3answers
618 views
How can an ETF outperform its benchmark index?
Deutsche Bank’s ETF platform, db X-trackers, provides a rather remarkable ETF tracking Euro Stoxx 50 (which is the most widely used regional blue-chip index in Europe).
What makes it remarkable is ...
17
votes
2answers
1k views
How much data is needed to validate a short-horizon trading strategy?
Suppose one has an idea for a short-horizon trading strategy, which we will define as having an average holding period of under 1 week and a required latency between signal calculation and execution ...
4
votes
2answers
304 views
What does put-call parity imply about option premiums?
We know that $$C-P = PV(F_{0,T}-K)$$
When we create a synthetic forward, we buy call and sell a put at the same strike price $K$. When we buy the call why do we assume the premium is positive? When ...
3
votes
2answers
1k views
Arbitraging OANDA continuous rollover vs other brokers' discrete rollover
Most brokers compute rollover once a day (2200 GMT), but OANDA
calculates it continuously.
I thought I'd cleverly found an arbitrage opportunity, but it turns
out OANDA knows about this and ...
11
votes
4answers
3k views
Is statistical arbitrage on FX possible?
Do you know of any papers which consider pairs trading (or statistical arbitrage) on foreign exchange? I couldn't find any. I asked this question on several forums and got no reply. Thus I guess this ...
4
votes
1answer
385 views
What research is available on the performance of convertible bond arbitrage models?
The basic principles of convertible bond arbitrage have been clear at least since Thorp and Kassouf (1967). For those who are not familiar, the arbitrage entails purchasing a convertible bond and ...
7
votes
2answers
1k views
SPX options vs VIX futures trading
Forward volatility implied by SPX options, and that of VIX futures get out of line. If there existed VIX SQUARED futures they could easily be replicated (and arbitraged) with a strip of SPX options. ...
9
votes
5answers
930 views
When to shut down a trend following strategy?
Suppose I have trend following strategy(on close to close data) that is not getting acceptable returns for some time. When should I start thinking about shutting it down?
5
votes
1answer
412 views
USDCAD options vs CADUSD options arbitrage?
I think I've found an arbitrage opportunity. Right now, I can do this
(first via CME, second via SAXO) :
BUY CADUSD AMERICAN PUT 10200 STRIKE EXPIRING 16 MAR 2011 FOR 53 pips USD
SELL USDCAD ...
