Identifying Statistical Arbitrage in Interest Rate Markets: A Genetic Algorithm Approach | Zendy

Thiago Ramos-Almeida | Zendy; Juan Arismendi Zambrano | Zendy; Juan C. Reboredo | Zendy; Miguel Angel Rivera Castro | Zendy

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Identifying Statistical Arbitrage in Interest Rate Markets: A Genetic Algorithm Approach

Author(s) -

Thiago Ramos-Almeida,

Juan Arismendi Zambrano,

Juan C. Reboredo,

Miguel Angel Rivera Castro

Publication year - 2020

Publication title -

ssrn electronic journal

Language(s) - English

Resource type - Journals

ISSN - 1556-5068

DOI - 10.2139/ssrn.3654219

Subject(s) - arbitrage , statistical arbitrage , algorithm , interest rate , econometrics , financial economics , economics , computer science , actuarial science , risk arbitrage , finance , arbitrage pricing theory , capital asset pricing model

In this paper a multidimensional term structure model is used to find statistical arbitrage opportunities in the interest rates derivatives market. The implied volatility of the model is calibrated by using a genetic algorithm optimization method. Two different options over the same underlying interest rate asset are tested, using data from a weak efficient economy market. The results show that there is no systematic mis-pricing between these two options, but temporary arbitrage opportunities perceptible to the average informed trader are possible.

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