Posts Tagged ‘Arbitrage

20
Sep
11

Paper: Opciones, un poco de historia

The Early History of Option Contracts

Abtract

This chapter discusses the history of option contracts from ancient times until the appearance of Theorie der Prämiengeschäfte by Vincenz Bronzin in 1908.  The history examines the use of contracts with option features prior to the introduction of trade in free standing option contracts on the Antwerp bourse during the 16 th century.  Descriptions of the Amsterdam share option market by de la Vega in the 17 th century and de Pinto in the 18 th century are reviewed.  The specific language of a late 17 th century English option contract is provided in detail.  The development and practice of option trading in the 18 th  and 19 th centuries, as reflected  in merchant manuals of that period, is examined.  The article concludes with an overview of late 19 th century option trading in securities and commodities.

Link al Paper

14
Nov
10

Paper: Factor Geográfico en el Arbitraje Estadístico

Relativistic statistical arbitrage

Recent advances in high-frequency financial trading have made light propagation delays between geographically separated exchanges relevant. Here we show that there exist optimal locations from which to coordinate the statistical arbitrage of pairs of spacelike separated securities, and calculate a representative map of such locations on Earth. Furthermore, trading local securities along chains of such intermediate locations results ina novel econophysical effect, in which the relativistic propagation of tradable information is effectively slowedor stopped by arbitrage.

Link al Paper

18
Sep
10

Paper: Arbitrando TIPS y Treasury

WHY DOES THE TREASURY ISSUE TIPS? THE TIPS–TREASURY BOND PUZZLE

Abstract

We show that the price of a Treasury bond and an inflation-swapped TIPS issue exactly replicating the cash flows of the Treasury bond can differ by more than $20 per $100 notional. Treasury bonds are almost always overvalued relative to TIPS. Total TIPS–Treasury mispricing has exceeded $56 billion, representing nearly eight percent of the total amount of TIPS outstanding. TIPS–Treasury mispricing is strongly related to supply factors such as Treasury debt issuance and the availability of collateral in the financial markets, and is correlated with other types of fixed-income arbitrages, These results pose a major puzzle to classical asset pricing theory. In addition, they raise the issue of why the Treasury issues TIPS, since in so doing it both gives up a valuable fiscal hedging option and leaves large amounts of money on the table.

Link al Paper

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FT Alphaville tiene más información sobre dicho trade.

16
May
10

ETFs y HFT

Matt Hougan tiene un post donde agrupa distintas explicaciones del rol que tuvieron el ETFs en el crash de hace dos jueves atrás. Dejando en claro de que su protagonismo se debe a cuestiones de estrategias y no debido a fallas en los diversos productos.

(…)

The most popular explanation I’ve heard is that ETFs are exposed to mistaken prices in underlying stocks. Computers are constantly monitoring the share price of ETFs and comparing those to the fair value of their underlying components. When prices get out of whack, computers will arbitrage the difference away, selling an ETF and buying its underlying securities, or vice versa.

(…)

___________________

UPDATE:

Nota sobre el Crash del 6 de mayo

UPDATE -II:

Rajiv Sethi tiene una postura interesante sobre lo sucedido.

03
May
10

Paper: Una Critica a Behavioral Finance

Models, Reflexivity, and Systemic Risk: A Critique of Behavioral Finance

Abstract:
This study considers the problem of systemic risk in financial markets dominated by models. Existing approaches debate the relative importance of financial models versus the biases introduced by social cues. In place of models versus social cues, our alternative account examines the interaction between models and social cues. Our ethnographic observations in the derivatives trading room of a major investment bank demonstrate that systemic risk arises from the precautionary efforts of traders. Traders check for errors in their own calculations by using models in reverse that represent the positions of their anonymous and impersonal rivals. We thus find traders modeling social cues. Such reflexive use of models leverages the dissonance among rival traders, but in the absence of requisite diversity such dissonance turns to resonance. If enough traders overlook a key issue, their mistake will reverberate to others. The resulting cognitive lock-in leads to arbitrage disasters. The trading room we observed suffered one major such disaster. Our analysis challenges behavioral accounts of systemic risk by locating its roots in the socio-technical mechanisms of reflexivity rather than individual biases.

Link al Paper

Articulo de donde obtuve el paper.

16
Feb
10

Paper: Arbitraje y Volatilidad

Benchmarks as Limits to Arbitrage: Understanding the Low Volatility Anomaly

Abstract:
Over the past 41 years, high volatility and high beta stocks have substantially underperformed low volatility and low beta stocks. We propose an explanation that combines the average investor’s preference for risk and the typical institutional investor’s mandate to maximize the ratio of excess returns and tracking error relative to a fixed benchmark (the information ratio) without resorting to leverage. Models of delegated asset management show that such mandates discourage arbitrage activity in both high alpha, low beta stocks and low alpha, high beta stocks. This explanation is consistent with several aspects of the low volatility anomaly including why it has only strengthened even as institutional investors have become more numerous.

Link al Paper




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