Gauge Invariance, Geometry and Arbitrage Export

@article{citeulike:5739236, abstract = {In this work, we identify the most general measure of arbitrage for any market model governed by It\^o processes. We show that our arbitrage measure is invariant under changes of num\'{e}raire and equivalent probability. Moreover, such measure has a geometrical interpretation as a gauge connection. The connection has zero curvature if and only if there is no arbitrage. We prove an extension of the Martingale pricing theorem in the case of arbitrage. In our case, the present value of any traded asset is given by the expectation of future cash-flows discounted by a line integral of the gauge connection. We develop simple strategies to measure arbitrage using both simulated and real market data. We find that, within our limited data sample, the market is efficient at time horizons of one day or longer. However, we provide strong evidence for non-zero arbitrage in high frequency intraday data. Such events seem to have a decay time of the order of one minute.}, archivePrefix = {arXiv}, author = {Vazquez, Samuel E. and Farinelli, Simone}, citeulike-article-id = {5739236}, citeulike-linkout-0 = {http://arxiv.org/abs/0908.3043}, citeulike-linkout-1 = {http://arxiv.org/pdf/0908.3043}, day = {21}, eprint = {0908.3043}, keywords = {and, arbitrage, gauge, geometry, invariance}, month = {Aug}, posted-at = {2009-09-08 11:05:23}, priority = {2}, title = {Gauge Invariance, Geometry and Arbitrage}, url = {http://arxiv.org/abs/0908.3043}, year = {2009} }

TY - JOUR ID - citeulike:5739236 L3 - citeulike-article-id:5739236 N2 - In this work, we identify the most general measure of arbitrage for any market model governed by It\^o processes. We show that our arbitrage measure is invariant under changes of num\'{e}raire and equivalent probability. Moreover, such measure has a geometrical interpretation as a gauge connection. The connection has zero curvature if and only if there is no arbitrage. We prove an extension of the Martingale pricing theorem in the case of arbitrage. In our case, the present value of any traded asset is given by the expectation of future cash-flows discounted by a line integral of the gauge connection. We develop simple strategies to measure arbitrage using both simulated and real market data. We find that, within our limited data sample, the market is efficient at time horizons of one day or longer. However, we provide strong evidence for non-zero arbitrage in high frequency intraday data. Such events seem to have a decay time of the order of one minute. TI - Gauge Invariance, Geometry and Arbitrage KW - and KW - arbitrage KW - gauge KW - geometry KW - invariance AU - Vazquez, Samuel AU - Farinelli, Simone PY - 2009/Aug/21/ UR - http://arxiv.org/abs/0908.3043 ER -