Open AccessGenetic Algorithm for Arbitrage with More than Three Currencies
Author(s) -
Adrián Fernández-Pérez,
Fernando Fernández Rodríguez,
Simón SosvillaRivero
Publication year - 2012
Publication title -
ji shu yu tou zi
Language(s) - English
Resource type - Journals
eISSN - 2150-4059
pISSN - 2150-4067
DOI - 10.4236/ti.2012.33025
Subject(s) - arbitrage , economics , covered interest arbitrage , exchange rate , ranking (information retrieval) , interest rate parity , database transaction , monetary economics , business , algorithm , financial economics , computer science , artificial intelligence , programming language
We develop a genetic algorithm that is able to find the optimal sequence of exchange rates that maximizes arbitrage profits with more than three currencies, being both the triangular arbitrage and the direct exchange rate two special cases of the proposed algorithm. Applying the algorithm to the most traded currencies, we find average profits ranking from 4.5083% to 0.3162% for changing 1 USD for EUR with respect to the direct exchange rate, for different transaction costs, during the period October 2000-April 2012. Our results also suggest that the arbitrage profits increased just after the subprime crisis in summer of 2007 and that they are higher when the market is less liquid