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-2
votes
2answers
127 views

If I am very fast (less than 10 microseconds latency) what would be the first strategy to execute? [on hold]

Let's assume I found the holy grail of low-latency trading (which I didn't). For educational purposes, what would be the first strategy I would direct my trading code?
-1
votes
1answer
133 views

Where can I find literature (books, articles, etc.) about basic HFT / arbitrage strategies? [on hold]

I am not looking for your winning strategies. Just the basic stuff from where to start. Can anyone share their opinions about what should I read to hit the ground running?
2
votes
1answer
129 views

Calibrating an Ornstein Uhlenbeck process on residuals of regression

I am trying a basic statistical arbitrage strategy as follows: Perform PCA on a log return series of a basket of stocks Regress returns against top principal components identified Calculate the ...
-3
votes
2answers
121 views

What software should I use for forex arbitrage?

These are my requirements: Speed of lookup & update Speed of crunching large numbers and combinations The exchanges I want to connect to will mostly provide json feeds to their orderbooks & ...
4
votes
2answers
77 views

How does this follow from the separating hyperplane theorem?

This is from Pliskas book in mathematical finance. I do not know what was best to write the question so I included the pages from the book. He has not written what form of the separating hyperplane ...
1
vote
1answer
62 views

ADR vs Foriegn Stock Price Arbitraguers

So I am sure you all know about the whole Argentina default that has been in the papers lately, no need to delve into it. This so called "technical" default has lead some interesting investment ...
1
vote
2answers
164 views

M&A hedging an equity portfolio against an index

Quick Note This question was already posted under the userID user8170. Reason being I could not access my account. Now I am able to login to my account I am reposting the question here and will ...
1
vote
0answers
62 views

Asset true price determination, quoted on 2 exchanges

There is a stock that is quoted on 2 exchanges and I'm thinking about ideal (from market micro structure point) method for calculate true value of that asset. Assuming that venue with volume traded ...
1
vote
3answers
268 views

Is this arbitrage?

Assume the stockprice as in the Black-Scholes model (Geometric Brownian Motion): $$S_t=S_0e^{(\mu-\sigma^2/2)\cdot t+\sigma W_t}$$ Wouldn't there be an immediate arbitrage opportunity, to just buy ...
4
votes
2answers
99 views

law of one price, understanding

I am reading about mathematical finance, and I was tipsed to ask the quesiton on this site. It is about the "law of one price". Just first I'll make precise the model my book uses: I have a single ...
1
vote
2answers
82 views

Non-Negativity of up-factor and down-factor in Binomial No-Arbitrage Pricing Model

Consider a stock which is trading at $S_0$ at time $t=0$ and is expected to be trading at price $uS_0$ or $dS_0$ at time t=1 where $u$ and $d$ are up-factor and down-factor. The theory says that to ...
1
vote
3answers
104 views

Arbitrage free implies complete market?

In Tomas Björk's Arbitrage Theory in Continuous Time (or here), $\exists$ this proposition It seems that to show that the model is complete, we must show that the claims are reachable. That is, we ...
1
vote
2answers
103 views

Pricing Principle 1

In Tomas Björk's Arbitrage Theory in Continuous Time (or here), $\exists$ this Pricing Principle. Is the one in red supposed to be the proof of the Pricing Principle 1? Or merely an intuitive ...
1
vote
1answer
74 views

Prove that the binomial algorithm implies the arbitrage free price at t=0 of a T-claim

In Tomas Bjork's Arbitrage Theory in Continuous Time (or here), $\exists$ these propositions How does the first formula follow from from the algorithm? I get that $\Pi(0;X) = V_0(0)$, but I don't ...
1
vote
2answers
77 views

Which is the correct definition of arbitrage?

Spin-off from here. In Tomas Bjork's Arbitrage Theory in Continuous Time (or here), $\exists$ 2 inconsistent definitions of arbitrage, which is correct? The first definition is for the single period ...
2
votes
3answers
76 views

Inconsistent Definition of Arbitrage in Bjork?

In Tomas Bjork's Arbitrage Theory in Continuous Time (or here), $\exists$ what seems to be 2 inconsistent definitions of arbitrage: The first definition is for the single period Binomial model The ...
2
votes
1answer
219 views

How Much Capital is Needed to Start an Arbitrage Strategy?

I'm trying to experiment with a simulated simple arbitrage strategy. I'm not doing this to actually invest, I'm just curious if the market is inefficient enough for this to be feasible. Every ...
1
vote
1answer
117 views

In a Black-Scholes world, why must volatility be strictly increasing in time-to-expiration?

This question is from Rebonato's Volatility and Correlation 2nd Edition. Rebonato states that if $\sigma_T^2T$ is not strictly increasing, it would be simple to set up an arbitrage. Unfortunately ...
3
votes
1answer
151 views

Arbitragefree Pricing: Q vs. P

I read that the Fundamental Theorem of Asset Pricing states, that a market is arbitrage-free if and only if there exists an equivalent martingale measure Q, under which the discounted asset price ...
1
vote
1answer
77 views

Arbitrage Strategy Proof in Bjork

In Tomas Bjork's Arbitrage Theory in Continuous Time (or here), $\exists$ this proposition Proposition 2.9 Suppose that a claim X is reachable with replicating portfolio h. Then any price at t=0 of ...
0
votes
0answers
48 views

Multi-Factor Models Application

I am trying to use what I learned about multi-Factor Models to apply to some questions: Suppose investing 80% in Portfolio A -100% in Portfolio B 20% in risk free asset If $\hat{F_1}$, denoted by ...
5
votes
3answers
429 views

Volatility arbitrage - how is the profit extracted?

Is there any paper that describes in detail how the profit is extracted in directional volatility bet (vol arb)? I mean in the case that I bet the realized volatility will be lower than currently ...
3
votes
1answer
90 views

Pricing of a simple contingent claim

Earlier I had the question (5.11 Tomas Bjork): $$ \frac{\partial F}{\partial t}+\frac{1}{2}x^2\frac{\partial^2 F}{\partial t^2}+x = 0 $$ $$ F(T,x) = ln(x^2) $$ And solve it using Feynman-Kac. The ...
2
votes
0answers
72 views

Why is the LIBOR-market model free of arbitrage?

Recently I have been reading a lot on the market models. One thing that keeps escaping me - why is the Libor-market model (LMM) assumed to e free of aritrage in continuous time ? To me this means ...
1
vote
2answers
96 views

Harnessing small correlations for reliable profit

It is said that Edward O. Thorp was able to harness small correlations for reliable financial gain. I've seen some strategies based on strong correlations which did not seem particularly reliable. ...
0
votes
0answers
65 views

EMM in incomplete markets

The simply put question is as follows: do we need to restrict ourselves to EMM exclusively when pricing European contingent claims (=option payoffs) even if markets are incomplete? In particular, a ...
1
vote
1answer
87 views

Simple pricing example confusion

This it taken from "Heard on the Street", Section B. Consider a market with $0$ risk-free rate, no transactions costs etc. The IBM stock costs \$75 and does not pay dividends. Design a security ...
0
votes
3answers
453 views

Trading spot volatility

I am reading a paper that very briefly talks about some volatility arbitrage strategies. It's so brief that I do not exactly understand how it works. It says one of the strategy is based on "short ...
0
votes
0answers
55 views

Log returns vs. prices

I am currently working on a stat arb that is giving me a little bit of trouble. I'm under the impression that most stat arbs are going to use prices such that we can choose a ratio N such that: Price ...
1
vote
0answers
104 views

Calculating index arbitrage

I have a days-worth of level 2 market data. I am calculating S&P500 index arbitrage. I have a few questions about the calculation: 1) Should I be summing all the bids and asks from the stocks ...
1
vote
1answer
183 views

Derivation of the Nelson-Siegel model and proof of arbitrage

1. I am looking for a derivation of the Nelson-Siegel model $y(m)=a+b\left( \frac{1-e^{-\lambda m}}{\lambda m}\right)+c\left( \frac{1-e^{-\lambda m}}{\lambda m} -e^{-\lambda m} \right)$ It is ...
3
votes
0answers
50 views

FTAP in the model independent case, paper by Schachermayer

I have a question about the following paper by Beatrice Acciaio, Mathias Beiglböck, Friedrich Penkner, Walter Schachermayer. At the very beginning of the paper, on page 3, there are two definitions ...
1
vote
1answer
232 views

Arbirtage free price process question in Bjork's Arbitrage Theory in Continuous Time

I am currently working through questions in Bjork's Arbitrage Theory in Continuous Time. However, I am unable to solve the following question, 7.2 in the book. A solution would be greatly appreciated. ...
5
votes
1answer
141 views

Arbitrage with freshly issued bonds

I recently heard someone mention an arbitrage strategy involving selling freshly issued bonds and buying the "old batch" as it has shown that the liquidity in the fresh batch motivates/drives up these ...
0
votes
2answers
74 views

Calculate price of index from underlyings (weightings included)?

I have a day's worth of LSE data (FTSE100 companies) and I also have their weightings for the FTSE100. Ignoring the net present value of money, how do I calculate the current value of the FTSE? I ...
0
votes
1answer
305 views

Risk-free investment strategy for european call and put option

I have some trouble solving the following question: We have an european call and put option (with the same maturity date $T$ en strike $E=10$). The stock price now is $S=11$ and we use a continuous ...
2
votes
1answer
148 views

interest rate in cost of carry

What interest rates are used in practice in a stock index / futures arbitrage? I've seen cases, when the assumed rate is 3 months LIBOR, but does it mean, that everyone who does the arbitrage can ...
-1
votes
1answer
421 views

Calculating arbitrage- S&P 500 stocks vs S&P 500 Index future?

How exactly would I go about investigating whether the S&P 500 stocks were currently over-valued compared with the price of the S&P 500 Index futures contract? Is it just a case of taking each ...
2
votes
2answers
461 views

Index arbitrage with Options when not all underlyings have options listed?

One arbitrage strategy involves looking at the price of the Index Futures price compared with the prices of the options contracts for the underlyings. My question is, can this arbitrage strategy ...
1
vote
0answers
141 views

Example code for “Gauge Invariance, Geometry and Arbitrage” paper

This paper describes an algorithm for computing arbitrage opportunites using a gauge connetion. Has anyone written a python program or C++ or C# program that shows how to follow the steps outlines in ...
3
votes
0answers
584 views

Calculating most profitable arbitrage orders on multiple market with fixed and variable fees

If I have multiple markets (let's say 5, but the solution should be generic) trading the same stock/commodity/whatever, and the markets differ in both variable fees (which are in % of the trade order) ...
5
votes
1answer
527 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 ...
5
votes
1answer
1k 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 ...
4
votes
1answer
2k 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 ...
0
votes
1answer
412 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 ...
2
votes
1answer
655 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
930 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
629 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 ...
2
votes
2answers
528 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 ...
7
votes
3answers
3k 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: ...