Triangle Arbitrage-Cross Rate Exchanges effective, triangle

lunarfollies

Has anyone come up with an effective and quick way to solve the triangle arbitrage questions? Please share. Thanks

jacksparrow

Always find the implied cross rate and compare it with the actual one - for example, you have 3 rates:

x/y - y/z - z/x

divided or multiply two of them and you will get an IMPLIED rate for the third one - if the implied rate is different than actual one, then you will have arbitrage profit ..

Use chain rule after that:

start with x --> y --> z --> x

if you end up with a loss, reverse,

x --> z --> y --> x

you will end up with a profit

This is of course assuming that we are dealing with the average of bid-ask .. if bid-ask quotes are given, you need to take that into consideration