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Are There Arbitrage Opportunities in Credit Derivatives Markets? A New Test and an Application to the Case of CDS and ASPs

Mayordomo, Sergio; Peña Sánchez de Rivera, Juan Ignacio; Romo, Juan
Fonte: Universidade Carlos III de Madrid Publicador: Universidade Carlos III de Madrid
Tipo: Trabalho em Andamento Formato: application/pdf
Publicado em /09/2009 Português
Relevância na Pesquisa
37.46%
This paper analyzes possible arbitrage opportunities in credit derivatives markets using selffinancing strategies combining Credit Default Swaps and Asset Swaps Packages. We present a new statistical arbitrage test based on the subsampling methodology which has lower Type I error than existing alternatives. Using four different databases covering the period from 2005 to 2009, long-run (cointegration) and statistical arbitrage analysis are performed. Before the subprime crisis, we find long-run arbitrage opportunities in 26% of the cases and statistical arbitrage opportunities in 24% of the cases. During the crisis, arbitrage opportunities decrease to 8% and 19%, respectively. Arbitrage opportunities are more frequent in the case of relatively low rated bonds and bonds with a high coupon rate.

Integration and arbitrage in the spanish financial markets: an empirical approach

Balbás, Alejandro; Longarela, Iñaki R.; Pardo, Ángel
Fonte: Universidade Carlos III de Madrid Publicador: Universidade Carlos III de Madrid
Tipo: Trabalho em Andamento Formato: application/pdf
Publicado em /12/1997 Português
Relevância na Pesquisa
37.38%
Several authors have introduced different ways to measure the integration between fmancial markets. Most of them are derived from the basic assumptions to price assets, like the Law of One Price or the absence of arbitrage opportunities. Two perfectly integrated markets must give identical price to identical fmal payoffs, and a vector of positive discount factors, common to both markets, must exist. Therefore, if these properties do not hold, their degree of violation can be measured and considered as an integration measure. The present paper empirically test the integration measures in the Spanish fmancial markets. Hence, several interesting values are obtained, like for instance, the state prices or the risk-neutral probabilities. Furthermore, when the risk-neutral probabilities do not exist, explicit cross-market arbitrage portfolios are detected. The results of our test are surprising for several reasons. First of all, the arbitrage opportunities very often appear, and the bid-ask spread and the transaction costs are not able to avoid the arbitrage profits. Furthermore, the criticisms, which are usually argued when empirical papers show the existence of arbitrage opportunities, do not apply here, since we work with perfectly synchronized high frequency data. On the other hand...

The microeconomics of bullionism : arbitrage, smuggling and silver outflows in Spain in the early 18th century

Nogues-Marco, Pilar
Fonte: Universidade Carlos III de Madrid Publicador: Universidade Carlos III de Madrid
Tipo: info:eu-repo/semantics/draft; info:eu-repo/semantics/workingPaper Formato: application/pdf
Publicado em /06/2011 Português
Relevância na Pesquisa
37.14%
In the Early Modern period, there was a systematic flow of precious metals from the American colonies to Spain and Portugal and, from there, throughout the world. In this paper, I use newly discovered data on the black market for silver in Cadiz to reconstruct a picture of Castilian smuggling and international silver flows in the Age of Bullionism (1729-1741). The arbitrage equation shows persistent violations of the silver-point that made arbitrage systematically profitable until devaluation pegged the exchange rate to the arbitrated parity. Market structure explains the persistent violations. The Cadiz shadow price was lower than the international market price because bullionist regulations configured an oligopsonistic structure. The price gap was the reason for the Castilian silver outflows to Europe

Sequential arbitrage measurement in bond markets : theory and empirical applications in the Euro-zone

Balbás, Alejandro; Peng, Yao
Fonte: Universidade Carlos III de Madrid Publicador: Universidade Carlos III de Madrid
Tipo: info:eu-repo/semantics/draft; info:eu-repo/semantics/workingPaper
Publicado em 14/01/2015 Português
Relevância na Pesquisa
37.46%
We develop a mathematical programing approach in order to measure the arbitrage size in bond markets. Transaction costs may be incorporated. The obtained arbitrage measures have two interesting interpretations: On the one hand they provide the highest available arbitrage profit with respect to the price of the sold (bought) securities. On the other hand they give the minimum relative (per dollar) bid (ask) price modification leading to an arbitrage free market. Moreover, some primal problems lead to optimal arbitrage strategies (if available), while their dual problems generate proxies for the Term Structure of Interest Rates. The developed methodology permits us to implement an empirical test in the Euro-zone during the Euro crisis. Classical literature justifies the relevance of empirical analyses verifying the degree of efficiency during market turmoils. Our empirical study of the German, French and Spanish sovereign bonds markets finds that the main arbitrage opportunities come from the price differences between maturity-matched strips or "On-The-Run Premium" for zero-coupon bonds. When we remove the strips and the zero-coupon bonds the arbitrage still exists in the Spanish market.