Has anyone come up with an effective and quick way to solve the triangle arbitrage questions? Please share. Thanks作者: jacksparrow 时间: 2011-7-11 19:20
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
