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Arbitrage in Frictional Foreign Exchange Market

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  • First Online:
Encyclopedia of Algorithms

  • 185 Accesses

Years and Authors of Summarized Original Work

  • 2003; Cai, Deng

Problem Definition

The simultaneous purchase and sale of the same securities, commodities, or foreign exchange in order to profit from a differential in the price. This usually takes place on different exchanges or marketplaces and is also known as a “riskless profit.”

Arbitrage is, arguably, the most fundamental concept in finance. It is a state of the variables of financial instruments such that a riskless profit can be made, which is generally believed not in existence. The economist’s argument for its nonexistence is that active investment agents will exploit any arbitrage opportunity in a financial market and thus will deplete it as soon as it may arise. Naturally, the speed at which such an arbitrage opportunity can be located and be taken advantage of is important for the profit-seeking investigators, which falls in the realm of analysis of algorithms and computational complexity.

The identification of arbitrage...

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Author information

Authors and Affiliations

  1. Chinese Academy of Sciences, Institute of Systems Science, Beijing, China

    Mao-cheng Cai

  2. AIMS Laboratory (Algorithms-Agents-Data on Internet, Market, and Social Networks), Department of Computer Science and Engineering, Shanghai Jiao Tong University, 800 Dongchuan Road, 200240, Shanghai, China

    Xiaotie Deng

  3. Department of Computer Science, City University of Hong Kong, 800 Dongchuan Road, 200240, Hong Kong, China

    Xiaotie Deng

Authors
  1. Mao-cheng Cai
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  2. Xiaotie Deng
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Corresponding author

Correspondence to Mao-cheng Cai .

Editor information

Editors and Affiliations

  1. Department of Electrical Engineering and Computer Science, Northwestern University, Evanston, IL, USA

    Ming-Yang Kao

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Cai, Mc., Deng, X. (2016). Arbitrage in Frictional Foreign Exchange Market. In: Kao, MY. (eds) Encyclopedia of Algorithms. Springer, New York, NY. https://doi.org/10.1007/978-1-4939-2864-4_33

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