Latency arbitrage and the synchronized placement of orders

We argue that owing to traders’inability to fully express their preferences over the execution times of their orders,contemporary stock market designs are prone to latency arbitrage.In turn,we propose a new order type,which allows traders to specify the time at which their orders are executed after reaching the exchange.Using recent latency data,we demonstrate that the order type proposed here allows traders to synchronize order executions across different exchanges,such that high-frequency traders,even if they operate at the speed of light,can no-longer engage in latency arbitrage.

Empirical Study on Arbitrage Opportunities in China Copper Futures Market

No-arbitrage bound is established with no-arbitrage theory considering all kinds of trade costs, different deposit and loan interest rate, margin and tax in futures markets. The empirical results find that there are many lower bound arbitrage opportunities in China copper futures market from August 8th, 2003 to August 16th, 2005, Concretely, no-arbitrage opportunity is dominant and lower bound arbitrage is narrow in normal market segment. Lower bound arbitrage almost always exists with huge magnitude in inverted market segment. There is basically no-arbitrage in normal market because spot volume is enough, so that upper or lower bound arbi- trage can be realized, There is mostly lower bound arbitrage in inverted market because spot volume is lack.

Stability Analysis of Robust Arbitrage in a Random Interval Valued Financial Market

Stability of robust arbitrage under different probability measures is discussed in a random interval valued financial market.In a fundamental financial market without robust arbitrages, a suitable condition is given to guarantee that the market with new probability measures will also have no robust arbitrage. In order to specify the result got in this article,an example of binomial tree financial model with interval ratios of change is proposed.

NO-ARBITRAGE SYMMETRIES

The no-arbitrage property is widely accepted to be a centerpiece of modern financial mathematics and could be considered to be a financial law applicable to a large class of(idealized) markets.This paper addresses the following basic question:can one characterize the class of transformations that leave the law of no-arbitrage invariant?We provide a geometric formalization of this question in a non probabilistic setting of discrete time-the so-called trajectorial models.The paper then characterizes,in a local sense,the no-arbitrage symmetries and illustrates their meaning with a detailed example.Our context makes the result available to the stochastic setting as a special case.

An Empirical Examination of the Arbitrage Pricing Theory:Evidences from the U.S.Stock Market

This study investigates the effects of changes in local macroeconomic risk factors on returns on the banking,chemicals,insurance,telecommunication,and utilities industries in the U.S.market.Using a multifactor pricing model and data from 1998:01 to 2017:12,empirical results show that the banking,chemical,and telecommunication industries show more differences in their stock reactions to local macroeconomic risk factors.The insurance and telecommunication industries do not react significantly to risk factors.However,all the industries show strong reactions to local market portfolio.

Do Arbitragers Exploit the January Effect？

The January effect has been well documented since the 1970s. This study examines whether the January effect still exists and if it does, whether arbitrageurs exploit it. We find that the January effect is still persistently significant. Furthermore, we find that arbitrageurs appear to exploit the January effect, especially in good market years when the number of losing firms is limited and are therefore more easily identifiable. We also find that the January effect tends to be higher for losing stocks with high arbitrage costs relative to those with low arbitrage costs.

Arbitrage-free pricing of derivatives in nonlinear market models

The objective of this paper is to provide a comprehensive study of the no-arbitrage pricing of financial derivatives in the presence of funding costs,the counterparty credit risk and market frictions affecting the trading mechanism,such as collateralization and capital requirements.To achieve our goals,we extend in sev-eral respects the nonlinear pricing approach developed in(El Karoui and Quenez 1997)and(El Karoui et al.1997),which was subsequently continued in(Bielecki and Rutkowski 2015).

The regulatory arbitrage and window dressing in shadow banking:the example of Chinese wealth management product

We document that in China the maturity dates of bank-issued wealth management products(WMPs)cluster toward the end of a month and then decrease significantly at the beginning of the following month.Our empirical work detects a negative relationship between a bank’s loan-to-deposit ratio(LDR)at month-ends and the number of its issued WMPs expiring within several days of the month-end.Moreover,this WMP clustering and the negative relationship disappear after the reform in which regulators bring up measures for banks with a high deposit deviation degree in 2014.We also document that the banks tend to arrange the high-return WMPs to expire around month-ends to attract customers,and this clustering of high-return WMPs also disappears after the reform.Our findings suggest that banks actively,rather than passively,use WMPs as vehicles for their regulatory arbitrage or window dressing behaviours.

Time-Consistent Asymptotic Exponential Arbitrage with Small Probable Maximum Loss

Based on a concept of asymptotic exponential arbitrage proposed by F?llmerSchachermayer, the author introduces a new formulation of asymptotic arbitrage with two main differences from the previous one: Firstly, the realising strategy does not depend on the maturity time while the previous one does, and secondly, the probable maximum loss is allowed to be small constant instead of a decreasing function of time. The main result gives a sufficient condition on stock prices for the existence of such asymptotic arbitrage.As a consequence, she gives a new proof of a conjecture of F?llmer and Schachermayer.

Robust Valuation,Arbitrage Ambiguity and Profit&Loss Analysis

Model uncertainty is a type of inevitable financial risk.Mistakes on the choice of pricing model may cause great financial losses.In this paper we investigate financial markets with mean-volatility uncertainty.Models for stock market and option market with uncertain prior distributions are established by Peng’s G-stochastic calculus.On the hedging market,the upper price of an(exotic)option is derived following the Black–Scholes–Barenblatt equation.It is interesting that the corresponding Barenblatt equation does not depend on mean uncertainty of the underlying stocks.Appropriate definitions of arbitrage for super-and sub-hedging strategies are presented such that the super-and sub-hedging prices are reasonable.In particular,the condition of arbitrage for sub-hedging strategy fills the gap of the theory of arbitrage under model uncertainty.Finally we show that the term K of finite variance arising in the superhedging strategy is interpreted as the max Profit&Loss(P&L)of shorting a delta-hedged option.The ask-bid spread is in fact an accumulation of the superhedging P&L and the sub-hedging P&L.

Pathwise no-arbitrage in a class of Delta hedging strategies

We consider a strictly pathwise setting for Delta hedging exotic options,based on Follmer’s pathwise It¨o calculus.Price trajectories areˆd-dimensional continuous functions whose pathwise quadratic variations and covariations are determined by a given local volatility matrix.The existence of Delta hedging strategies in this pathwise setting is established via existence results for recursive schemes of parabolic Cauchy problems and via the existence of functional Cauchy problems on path space.Our main results establish the nonexistence of pathwise arbitrage opportunities in classes of strategies containing these Delta hedging strategies and under relatively mild conditions on the local volatility matrix.

Statistical arbitrage under the efficient market hypothesis

When a financial derivative can be traded consecutively and its terminal payoffs can be adjusted into a stationary time series,there might be a statistical arbitrage opportunity even under the efficient market hypothesis.In particular,we show the examples of selling put options of the three major ETFs(Exchange Traded Funds)in the U.S.market.

Forecasting semi-stationary processes and statistical arbitrage

If a financial derivative can be traded consecutively and its terminal payoffs can be adjusted as the sum of a bounded process and a stationary process,then we can use the moving average of the historical payoffs to forecast and the corresponding errors form a generalised mean reversion process.Thus we can price the financial derivatives by its moving average.One can even possibly get statistical arbitrage from certain derivative pricing.Weparticularly discuss the example of European call options.We show that there is a possibility to get statistical arbitrage from Black-Scholes’s option price.

Empirical study of speculation roles in international copper price bubble formation

By using GARCH（1,1）-M and EGARCH（1,1）-M models, the relationships among funds speculation transaction, arbitrage transaction and the fluctuation of international copper future price were studied. The news impact curve of copper future price fluctuation respectively introduced funds speculation position and arbitrage position was given, and the result is consistent with the empirical study conclusion. The results show that investment funds are not the factor that causes copper future price fluctuation, but can reduce the copper future price fluctuation; the copper future price fluctuation is more sensitive to negative information, and ftmd speculative positions can reduce asymmetric effect of copper price fluctuation, while fimds arbitrage position influences less.

Massive energy storage system for effective usage of renewable energy

The current energy trend indicates a strong thrust toward transforming renewable energy as a major power source.To achieve this mission,battery energy storage systems(BESSs)are indispensable.Although BESSs are expensive,cost reduction can be achieved by using BESSs for multiple purposes,such as load leveling,business continuity planning,frequency control,capacity market,arbitrage,and emergency power.In this paper,various applications of BESSs are classified.The possibility of achieving conflict-free combination of different applications is demonstrated.The total required energy storage capacity in Japan is estimated to be 150–200 GWh by 2030.The present status of NaS batteries for multipurpose use and new trends in battery-based businesses are introduced.

Recovery of Foreign Interest Rates from Exchange Binary Options

One of most challenging problems from applying the Black-Scholes model to financial derivatives, is reconciling the deviation between the expected and observed values. This study derives an extension of the Black-Scholes model and recovers the real drift of binary call options from their market prices. For space-dependent real drift, we obtain stable linearization and an integral equation. We also find that using market prices of options with different strike prices enables us to identify the term structure of the real drift. Results demonstrate that our new approach can confirm the existence of arbitrage opportunities in a binary option transaction.

A New Mean Reversion Model of Close-End Fund

On the basis of fractal theory, one of the nonlinear theories, this paper studies the validity of Chinese fund market fractal time sequence through Hurst exponent, calculates the H value and proposes a new close-end fund mean reversion model. Meanwhile, this paper validates the mean reversion time sequence for consecutive 54 week data of fund market. The result indicates that this model can effectively prove that Chinese close-end fund market follows the biased random walk. The research also proves that the fund discount does have mean reversion tendency and averagely the fund with high discount has a higher excess yield than that of the fund with low discount. The mean excess yield and the ratio between discount rate deviation and standard deviation demonstrate a descending relationship. The optimum investment period based on ＂mean reversion＂ is one month. Consequently this model provides a new arbitrage method through the discount of close-end fund.

Corporation Strategic Investment on Behavioral Finance

The traditional DCF approach ignoring the managerial flexibility of the decision makers often underestimates the value of project value. This paper not only takes into account the uncertainty of investment and the irreversibility of the sunk cost, but also takes the competitors＇ erode to the project value into it. Relax the EMH and the rationality of the investor＇s hypothesis, integrate the behavioral finance theory and the game option, and construct the valuing frame based on the behavioral finance and game option theory to make a scientific and effective project decision-making approach.

Back Finance： Financial Derivatives and 2008 Process

First of all, this paper explores monetary perspectives of Keynes and Friedman. Secondly, it explores financial derivative system in global economy. Thirdly, this study explores world money notion of M. Keynes. Keynes presented world money concept in 1944, in Bretton Woods Talk. His notion may be applied through global GDP today. Assumption of this study is that world money may finance debt payment of nations, and it finances balanced payment deficit of economies, because capitalism of modem economy requires money to run business system. Uysal （2016） presented World money Notion and 2008 Process in conference of 1 lth International Silkroad in Tbilisi, Georgia. Uysal （2015, 2016） discussed World Money concept in the conference with assumption that it may increase demand in global economy. This study is based on case study, which is 2008 Global Crise. Because its effect continues worldwide.

International Financial Market＇s Integration and Modelling Returns of Risky Assets

The aim of this paper is to test the ability of conditional and unconditional capital asset pricing models （CAPMs） and to explain emerging markets returns in terms of their integration into the international market. The authors use data on five developed countries and five emerging countries as well as data on the Tunis Stock Exchange （TSE） after the reforms. The results show that the correlations between emerging markets returns and developed markets returns are very low and sometimes negative. Conditional arbitrage pricing theory （APT） as well as conditional CAPM has low predictive power for emerging markets than that for developed markets. Finally, following the financial reforms, Tunisian financial markets have became more and more integrated into the international market （excess returns and unconditional beta consistent with predictions）. However, conditional APT does not accurately explain Tunisian market returns. This study confirms the unavailability of an accurate modelling technique of the TSE structure.