TY - JOUR
T1 - Arbitrage detection using max plus product iteration on foreign exchange rate graphs
AU - Cui, Zhenyu
AU - Taylor, Stephen
N1 - Publisher Copyright:
© 2019 Elsevier Inc.
PY - 2020/7
Y1 - 2020/7
N2 - We propose a novel graph-theoretic method to detect k-currency arbitrage in spot foreign exchange (FX) markets and discuss and compare the runtime performance of this method against the permutation search approach. This technique is applied to a minute level bid/ask quote dataset consisting of rates constructed from all G10 currency pairs. We validate this approach through an example while also demonstrating its runtime efficiency, especially in the case of spot markets consisting of a large number of currency pairs. Finally, several potential extensions including trading applications are discussed.
AB - We propose a novel graph-theoretic method to detect k-currency arbitrage in spot foreign exchange (FX) markets and discuss and compare the runtime performance of this method against the permutation search approach. This technique is applied to a minute level bid/ask quote dataset consisting of rates constructed from all G10 currency pairs. We validate this approach through an example while also demonstrating its runtime efficiency, especially in the case of spot markets consisting of a large number of currency pairs. Finally, several potential extensions including trading applications are discussed.
KW - 60F10
KW - 60G55
KW - 91B30
KW - Foreign exchange
KW - Max-plus product
KW - Shortest-path
KW - k-Currency arbitrage
UR - http://www.scopus.com/inward/record.url?scp=85071663873&partnerID=8YFLogxK
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U2 - 10.1016/j.frl.2019.08.027
DO - 10.1016/j.frl.2019.08.027
M3 - Article
AN - SCOPUS:85071663873
SN - 1544-6123
VL - 35
JO - Finance Research Letters
JF - Finance Research Letters
M1 - 101279
ER -