arbitrage


arbitrage - How do different methods and techniques used in pairs trading compare?

Both models are based on a spread, which has to be as stationary / mean reverting as possible. $ yt = \beta0 + \beta1 xt + \epsilon_t $ In pairs trading, $yt$ and $xt$ are log prices, and (e.g.) the... Read More


options - Arbitrage opportunity interview question

A similar question for put option has been discussed in this question: Finding Arbitrage in two Puts. Basically, the call option payoff is a convex function of the strike. Then the call option price... Read More


calculating arbitrage-free ranges based off outright, spread, and fly prices

Interesting question! I don't think you will get very far just using mid prices, though...any sufficiently sensitive test will flag nearly every situation as an arbitrage since $A\text{mid}+B\text{mi... Read More


statistics - market change, correlation and estimation bias

One easy way to cross-check that is to compute option implied correlations. Those correlations are model free and only depend on the current day option prices and they are indeed stable. For a nice... Read More


statistics - References on Statistical Arbitrages

Start with http://en.wikipedia.org/wiki/Statistical_arbitrage and the references therein. Especially Avellaneda (technical) and Bookstaber (historical, how Bamberger and Thorp got the whole thing sta... Read More


How to check that an interest rate curve is arbitrage free

To say a curve is arbitrage-free, you need to pick an arbitrage path; a series of trades which, when followed, yield a net profit without creating exposure. We neglect counterparty exposure here, sin... Read More


arbitrage - What is the pseudo code for a pairs trading strategy?

The following link has a good summary of a typical pair trading strategy: https://www.quantstart.com/articles/Backtesting-An-Intraday-Mean-Reversion-Pairs-Strategy-Between-SPY-And-IWM It actually has... Read More


stochastic volatility - Strike Arbitrage

If ${\frac {\partial^2 C} {\partial K ^2}}$ was zero, then the price-strike curve would just be a straight sloping-downwards line, and it would cost the same to buy either two call options at strike... Read More


Is anyone taking advantage of different prices across exchanges?

This is possible and many people do it, but the loop can be significantly delayed by the time it takes to transfer fiat between exchanges. There may be automation software out there, but it is likely... Read More


arbitrage - What is the difference between state prices and stochastic discount factor?

The two are very similar. To understand the difference notice that given a discrete sample space $\Omega=\{\omega1,\omega2…\omegaS\}$ the price of any payoff can be computed if we define the state pr... Read More