Work

No‐arbitrage matrices of exchange rates: Some characterizations

Year: 2019

Type: article

Abstract: We provide some characterizations of the absence of triangular arbitrage in the spot exchange rates of a group of countries. When the matrix of exchange rates of the group does not fulfill the conditions given in those characterizations, we provide a measure of distance to the space of matrices of exchange rates that are triangular arbitrage‐free. Using this distance, we compute the closest no‐arbitrage matrix of exchange rates of the group. We apply the methodology developed to the exchange rates between the currencies of Brazil (real), European Union (euro), Great Britain (pound sterling), and USA (dollar) to analyze the possibility of triangular arbitrage in those foreign exchange markets.

Source: International Journal of Economic Theory

DOI: 10.1111/ijet.12249

Authors: Wilfredo L. Maldonado, Juan José Egozcue, Vera Pawlowsky‐Glahn

Institutions: Universidade Federal de Goiás, Universitat Politècnica de Catalunya, Universitat de Girona

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

Funder: Fundação de Apoio à Pesquisa do Distrito Federal

Award: G7665786733