Research Seminar by Rohit Rahi (LSE): "Arbitrage Networks"

Tuesday, June 02 ICEF held the regular Research seminar.
Presenter: Rohit Rahi (LSE)
Topic: "Arbitrage Networks"

 

 

Abstract: this paper studies the general equilibrium implications of arbitrage trades by strategic players in segmented nancial markets. Arbitrageurs exploit clientele effects and choose which category of trades to specialize in, taking into consideration all other arbitrage strategies. This results in an equilibrium network in which the various market segments are linked by arbitrageurs. The complete network architecture, in which all links are feasible, is never optimal for arbitrageurs. It is dominated by a hub-spoke architecture. The reason is that the complete architecture suers from a Prisoner's Dilemma problem. We show that, as the number of arbitrageurs grows, equilibrium prices converge to those of the frictionless economy with no segmentation.

 

Venue: Pokrovsky boulevard, 11, building Zh, room 822

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