The profitability of interest arbitrage when the base currency is pegged to a basket
Tóm tắt
When the interest rate on a currency that is pegged to a basket differs from the interest rate on the basket (as a weighted average), it is possible to make profit from interest arbitrage by going short on the basket and long on the pegged currency, or vice versa. This proposition is illustrated by using data on the Kuwaiti dinar and its basket currencies over the period 1998–2002 when the currency was pegged to a basket. Monte Carlo simulations show that the probability of making arbitrage profit from any single operation is about 95%.
Tài liệu tham khảo
Baharumshah AZ, Wooi HC (2007) Exchange rate volatility and the Asian financial crisis: evidence from South Korea and ASEAN-5. Rev Pac Basin Financ Mark Policies 10:237–264
Balvers R, Wu Y (2010) Optimal transaction filters under transitory trading opportunities: theory and empirical illustration. J Financ Mark 13:129–156
Bayraktar S (2009) The impact of exchange rate risk on international asset pricing under various market structures. Rev Quant Financ Acc 32:169–195
Chiang TC, Yang SY (2005) International asset excess returns and multivariate conditional volatilities. Rev Quant Financ Acc 24:295–312
Christofferson P, Giorgianni L (1999) Interest arbitrage in currency baskets: forecasting weights and measuring risk. IMF working papers, no WP/99/16
DeMaskey AL, Dellva WL, Heck JL (2003) Benefits from Asia Pacific mutual fund investments with currency hedging. Rev Quant Financ Acc 21:49–64
Goldman S (1997) Emerging debt markets biweekly (various issues)
Horngren L, Vredin A (1989) Exchange risk premia in a currency basket system. Weltwirtsch Arch 125:311–325
Klein M (1989) Arbitrage and interest rates on currency baskets. Weltwirtsch Arch 125:296–310
Koopman SJ, Harvey AC, Doornik JA, Shephard N (1999) STAMP: structural time series analyser, modeler and predictor. Timberlake and Consultants Ltd, London
Maghrebi N, Holmes MJ, Pentecost EJ (2006) Are there asymmetries between exchange rate fluctuations and the stock market volatility in Pacific Basin countries? Rev Pac Basin Financ Mark Policies 9:229–256
Martzoukos SH (2001) Hysteresis models of investment with multiple uncertainties and exchange rate risk. Rev Quant Financ Acc 16:251–268
Moosa IA (2003) International financial operations: arbitrage, hedging, speculation, investment and financing. Palgrave, London
Moosa IA (2005) Exchange rate regimes: fixed, flexible or something in between? Palgrave, London
Morgan JP (1997) Asian local markets (various issues)
Pikkarainen P (1991) International portfolio diversification: the basket-peg regime. J Int Money Financ 10:432–442