• The Korean Journal of Financial Management
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• v.24 no.3
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• pp.91-131
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• 2007

In the paper, the effects of sidecar on index arbitrage trading and non-index arbitrage trading in the Korean stock market are examined. The analyses of return, volatility, and liquidity dynamics illustrate that there are no distinct differences for index arbitrage group and non-index arbitrage group surrounding the sidecar events. For further analysis, we construct pseudo-sidecar sample and analyse the effects of the actual sidecar and pseudo-sidecar on arbitrage sample and non-index arbitrage sample. The result of analysis using pseudo-sidecar shows that the differences between index arbitrage group and non-index arbitrage group are larger in pseudo-sidecar sample than in actual sidecar sample. This means that former results can be explained by temporary order clustering in one side before and after the event. Sidecar has little effect on non-index arbitrage group, however, it has relatively large effect on arbitrage group. These results imply that it needs to redesign the sidecar system of the Korean stock market which applies for all program trading including arbitrage and non-index arbitrage trading.

• Journal of applied mathematics & informatics
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• v.8 no.3
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• pp.1001-1007
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• 2001

In this paper, we show the existence of securities protfolio in security model with influx and find the non-arbitrage class of protfolios.

• KIEE International Transactions on Power Engineering
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• v.5A no.4
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• pp.311-321
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• 2005

A competitive generating company (GENCO) could maximize its payoff by optimizing its generation assets. This paper considers the GENCO's arbitrage problem using price-based unit commitment (PBUC). The GENCO could consider arbitrage opportunities in purchases from qualifying facilities (QFs) as well as simultaneous trades with spots markets for energy, ancillary services, emission, and fuel. Given forecasted hourly market prices for each market, the GENCO's generating asset arbitrage problem is formulated as a mixed integer program (MIP) and solved by a branch-and-cut algorithm. A GENCO with 54 thermal and 12 combined-cycle units is considered for analyzing the proposed formulation. The proposed case studies illustrate the significance of simultaneous arbitrage by applying PBUC to multi-commodity markets.

• Journal of the Korean Society for Industrial and Applied Mathematics
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• v.14 no.4
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• pp.249-273
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• 2010

Often in practice, the implied volatility of an option is calculated to find the option price tomorrow or the prices of, nearby' options. To show that one does not need to adhere to the Black- Scholes formula in this scheme, Figlewski has provided a new pricing formula and has shown that his, alternating passive model' performs as well as the Black-Scholes formula [8]. The Figlewski model was modified by Henderson et al. so that the formula would have no static arbitrage [10]. In this paper, we show how to construct a huge class of such static no arbitrage pricing functions, making use of distortions, coherent risk measures and the pricing theory in incomplete markets by Carr et al. [4]. Through this construction, we provide a more elaborate static no arbitrage pricing formula than Black-Sholes in the above scheme. Moreover, using our pricing formula, we find a volatility curve which fits with striking accuracy the synthetic data used by Henderson et al. [10].

• Journal of Electrical Engineering and Technology
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• v.13 no.1
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• pp.51-59
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• 2018

Despite the advantages of energy arbitrage using energy storage systems (ESSs), the high cost of ESSs has not attracted storage owners for the arbitrage. However, as the costs of ESS have decreased and the price volatility of the electricity market has increased, many studies have been conducted on energy arbitrage using ESSs. In this study, the existing two-period model is modified in consideration of the ESS cost and risk-free contracts. Optimal investment strategies that maximize the sum of external effects caused by price changes and arbitrage profits are formulated by market participants. The optimal amounts of ESS investment for three types of investors in three different market structures are determined with game theory, and strategies in the form of the mixed-complementarity problem are solved by using the PATH solver of GAMS. Results show that when all market participants can participate in investment simultaneously, only customers invest in ESSs, which means that customers can obtain market power by operating their ESSs. Attracting other types of ESS investors, such as merchant storage owners and producers, to mitigate market power can be achieved by increasing risk-free contracts.

• The Korean Journal of Financial Management
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• v.26 no.3
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• pp.65-101
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• 2009

The effects of program trading halts system (sidecar) on information asymmetry of program trading stocks, index arbitrage stocks, and non-index arbitrage stocks in the Korean stock market are examined. Effective spread and number of program trade of each stock are used as proxy variables for information asymmetry. The main results are as follows; Firstly, we find that effective spreads of program trading stocks in the post-halt period decrease significantly following the halt period. This means that sidecar has the effect of reducing information asymmetry in the Korean stock market. Secondly, the mitigation effect of information asymmetry of program trading stocks works only in buy-program trading stocks, but not in sell-program trading stocks. Thirdly, the results show that there are no distinct differences for index arbitrage group and non-index arbitrage group surrounding the sidecar events. In other words, program trading halts system has a mitigating effect of information asymmetry in not only index arbitrage trading stocks but also non-index arbitrage stocks. Fourthly, this mitigation effect works only in buy-sample not in sell-sample like in program trading stocks. And lastly, the analyses result of number of program trade shows that number of program trade of almost of sample stocks increases after the sidecar events. This implies that the information asymmetry is not fully resolved during the halt period and the effect of news inducing sidecar is continuing after the event.

• Journal of Korean Society of Industrial and Systems Engineering
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• v.37 no.4
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• pp.202-211
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• 2014

Pairs trading is a type of arbitrage investment strategy that buys an underpriced security and simultaneously sells an overpriced security. Since the 1980s, investors have recognized pairs trading as a promising arbitrage strategy that pursues absolute returns rather than relative profits. Thus, individual and institutional traders, as well as hedge fund traders in the financial markets, have an interest in developing a pairs trading strategy. This study proposes pairs trading rules (PTRs) created from a price ratio between securities (i.e., stock index futures) using rough set analysis. The price ratio involves calculating the closing price of one security and dividing it by the closing price of another security and generating Buy or Sell signals according to whether the ratio is increasing or decreasing. In this empirical study, we generate PTRs through rough set analysis applied to various technical indicators derived from the price ratio between KOSPI 200 and S&P 500 index futures. The proposed trading rules for pairs trading indicate high profits in the futures market.

• Journal of the Korean Mathematical Society
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• v.35 no.3
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• pp.659-673
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• 1998

In this paper we consider a security market whose asset price process is a vector semimartingale. The market is said to be fair if there exists an equivalent martingale measure for the price process, deflated by a numeraire asset. It is shown that the fairness of a market is invariant under the change of numeraire. As a consequence, we show that the characterization of the fairness of a market is reduced to the case where the deflated price process is bounded. In the latter case a theorem of Kreps (1981) has already solved the problem. By using a theorem of Delbaen and Schachermayer (1994) we obtain an intrinsic characterization of the fairness of a market, which is more intuitive than Kreps' theorem. It is shown that the arbitrage pricing of replicatable contingent claims is independent of the choice of numeraire and equivalent martingale measure. A sufficient condition for the fairness of a market, modeled by an Ito process, is given.

• Korea Petroleum Association Journal
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• s.266
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• pp.54-59
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• 2008

• Industrial Engineering and Management Systems
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• v.9 no.4
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• pp.323-338
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• 2010

In this paper, we introduce the implied volatility from Black-Scholes model and suggest a model for constructing implied volatility surfaces by using the two-dimensional cubic (bi-cubic) spline. In order to utilize a spline method, we acquire grid (knot) points. To this end, we first extract implied volatility curves weighted by trading contracts from market option data and calculate grid points from the extracted curves. At this time, we consider several conditions to avoid arbitrage opportunity. Then, we establish an implied volatility surface, making use of the two-dimensional cubic spline method with previously estimated grid points. The method is shown to satisfy several properties of the implied volatility surface (smile, skew, and flattening) as well as avoid the arbitrage opportunity caused by simple match with market data. To show the merits of our proposed method, we conduct simulations on market data of S&P500 index European options with reasonable and acceptable results.