No‐arbitrage matrices of exchange rates: Some characterizations
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 e...
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| Veröffentlicht in: | International journal of economic theory 2021-12, Vol.17 (4), p.375-389 |
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| container_title | International journal of economic theory |
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| creator | Maldonado, Wilfredo L. Egozcue, Juan José Pawlowsky‐Glahn, Vera |
| description | 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. |
| doi_str_mv | 10.1111/ijet.12249 |
| format | Article |
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| language | eng |
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| subjects | Arbitrage compositional data analysis foreign exchange market Foreign exchange markets Foreign exchange rates Matrices triangular arbitrage |
| title | No‐arbitrage matrices of exchange rates: Some characterizations |
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