A Relation between Short-Term and Long-Term Arbitrage
P. Liebrich
TL;DR
This paper establishes a theoretical link between short-term arbitrage measures from Geometric Arbitrage Theory and long-term arbitrage concepts from Stochastic Portfolio Theory, connecting two frameworks for market non-equilibrium effects.
Contribution
It introduces a novel relation bridging short-term and long-term arbitrage theories within financial market analysis.
Findings
Connects two different arbitrage frameworks
Provides a mathematical relation between short-term and long-term arbitrage
Enhances understanding of market non-equilibrium dynamics
Abstract
In this work a relation between a measure of short-term arbitrage in the market and the excess growth of portfolios as a notion of long-term arbitrage is established. The former originates from "Geometric Arbitrage Theory" and the latter from "Stochastic Portfolio Theory". Both aim to describe non-equilibrium effects in financial markets. Thereby, a connection between two different theoretical frameworks of arbitrage is drawn.
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Taxonomy
TopicsStochastic processes and financial applications · Financial Markets and Investment Strategies · Economic theories and models