Abstract
This chapter discusses the conditions for both covered arbitrage and one-way arbitrage in the cross-currency market. Continuous real-time quotes on the cross-rate markets, yen-mark, are collected and arbitrage frequency and profits are calculated on a real-time basis. As originated by A. V. Deardorff and demonstrated by P. Callier and R. S. Woodward, one-way arbitrage in the currency forward market results in different bounds from covered arbitrage. Computer knowhow and financial engineering have been closely linked in the area of special proprietary trading, e.g. program trading and other arbitrage activities. As most of the computer-driven real-time trading programs need to be in-house programmed and real-time data inputs are expensive, the real-time simulation approach is limited to large institutions engaging in proprietary trading activities. Reuters in a joint effort with Microsoft released Excel Access which retrieves Reuters real-time quotes from the Microsoft Excel worksheet. In the real-time simulation, continuous real-time quotes were used to calculate triangular trading values.
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