Computation of arbitrage in a financial market with various types of frictions

Maocheng Cai; Xiaotie Deng; Zhongfei Li

doi:10.1007/11496199_30

Computation of arbitrage in a financial market with various types of frictions

Maocheng Cai
, Xiaotie Deng
, Zhongfei Li

Department of Computer Science

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

Abstract

In this paper we study the computational problem of arbitrage in a frictional market with a finite number of bonds and finite and discrete times to maturity. Types of frictions under consideration include fixed and proportional transaction costs, bid-ask spreads, taxes, and upper bounds on the number of units for transaction. We obtain some negative result on computational difficulty in general for arbitrage under those frictions: It is NP-complete to identify whether there exists a cash-and-carry arbitrage transaction and it is NP-hard to find an optimal cash-and-carry arbitrage transaction. © Springer-Verlag Berlin Heidelberg 2005.

Original language	English
Pages (from-to)	270-280
Journal	Lecture Notes in Computer Science
Volume	3521
DOIs	https://doi.org/10.1007/11496199_30
Publication status	Published - 2005
Event	First International Conference on Algorithmic Applications in Management, AAIM 2005 - Xian, China Duration: 22 Jun 2005 → 25 Jun 2005

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Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].

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title = "Computation of arbitrage in a financial market with various types of frictions",

abstract = "In this paper we study the computational problem of arbitrage in a frictional market with a finite number of bonds and finite and discrete times to maturity. Types of frictions under consideration include fixed and proportional transaction costs, bid-ask spreads, taxes, and upper bounds on the number of units for transaction. We obtain some negative result on computational difficulty in general for arbitrage under those frictions: It is NP-complete to identify whether there exists a cash-and-carry arbitrage transaction and it is NP-hard to find an optimal cash-and-carry arbitrage transaction. {\textcopyright} Springer-Verlag Berlin Heidelberg 2005.",

author = "Maocheng Cai and Xiaotie Deng and Zhongfei Li",

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T1 - Computation of arbitrage in a financial market with various types of frictions

AU - Cai, Maocheng

AU - Deng, Xiaotie

AU - Li, Zhongfei

N1 - Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].

PY - 2005

Y1 - 2005

N2 - In this paper we study the computational problem of arbitrage in a frictional market with a finite number of bonds and finite and discrete times to maturity. Types of frictions under consideration include fixed and proportional transaction costs, bid-ask spreads, taxes, and upper bounds on the number of units for transaction. We obtain some negative result on computational difficulty in general for arbitrage under those frictions: It is NP-complete to identify whether there exists a cash-and-carry arbitrage transaction and it is NP-hard to find an optimal cash-and-carry arbitrage transaction. © Springer-Verlag Berlin Heidelberg 2005.

AB - In this paper we study the computational problem of arbitrage in a frictional market with a finite number of bonds and finite and discrete times to maturity. Types of frictions under consideration include fixed and proportional transaction costs, bid-ask spreads, taxes, and upper bounds on the number of units for transaction. We obtain some negative result on computational difficulty in general for arbitrage under those frictions: It is NP-complete to identify whether there exists a cash-and-carry arbitrage transaction and it is NP-hard to find an optimal cash-and-carry arbitrage transaction. © Springer-Verlag Berlin Heidelberg 2005.

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UR - https://www.scopus.com/pages/publications/25144463899#tab=impact

U2 - 10.1007/11496199_30

DO - 10.1007/11496199_30

M3 - RGC 21 - Publication in refereed journal

SN - 0302-9743

VL - 3521

SP - 270

EP - 280

JO - Lecture Notes in Computer Science

JF - Lecture Notes in Computer Science

T2 - First International Conference on Algorithmic Applications in Management, AAIM 2005

Y2 - 22 June 2005 through 25 June 2005

ER -

Computation of arbitrage in a financial market with various types of frictions

Abstract

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