Imperial College London
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ProfessorKimChristensen

Faculty of Natural Sciences, Department of Physics

Professor of Theoretical Physics
 
 
 
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Contact

 

+44 (0)20 7594 7574k.christensen Website

 
 
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Assistant

 

Mrs Carolyn Dale +44 (0)20 7594 7579

 
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Location

 

812Blackett LaboratorySouth Kensington Campus

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Summary

 

Publications

Citation

BibTex format

@article{Ciacci:2020:10.1371/journal.pone.0234709,
author = {Ciacci, A and Sueshige, T and Takayasu, H and Christensen, K and Takayasu, M},
doi = {10.1371/journal.pone.0234709},
journal = {PLoS One},
pages = {1--19},
title = {The microscopic relationships between triangular arbitrage and cross-currency correlations in a simple agent based model of foreign exchange markets},
url = {http://dx.doi.org/10.1371/journal.pone.0234709},
volume = {15},
year = {2020}
}
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RIS format (EndNote, RefMan)

TY  - JOUR
AB  - Foreign exchange rates movements exhibit significant cross-correlations even on very short time-scales. The effect of these statistical relationships become evident during extreme market events, such as flash crashes. Although a deep understanding of cross-currency correlations would be clearly beneficial for conceiving more stable and safer foreign exchange markets, the microscopic origins of these interdependencies have not been extensively investigated. This paper introduces an agent-based model which describes the emergence of cross-currency correlations from the interactions between market makers and an arbitrager. The model qualitatively replicates the time-scale vs. cross-correlation diagrams observed in real trading data, suggesting that triangular arbitrage plays a primary role in the entanglement of the dynamics of different foreign exchange rates. Furthermore, the model shows how the features of the cross-correlation function between two foreign exchange rates, such as its sign and value, emerge from the interplay between triangular arbitrage and trend-following strategies. In particular, the interaction of these trading strategies favors certain combinations of price trend signs across markets, thus altering the probability of observing two foreign exchange rates drifting in the same or opposite direction. Ultimately, this entangles the dynamics of foreign exchange rate pairs, leading to cross-correlation functions that resemble those observed in real trading data.
AU  - Ciacci,A
AU  - Sueshige,T
AU  - Takayasu,H
AU  - Christensen,K
AU  - Takayasu,M
DO  - 10.1371/journal.pone.0234709
EP  - 19
PY  - 2020///
SN  - 1932-6203
SP  - 1
TI  - The microscopic relationships between triangular arbitrage and cross-currency correlations in a simple agent based model of foreign exchange markets
T2  - PLoS One
UR  - http://dx.doi.org/10.1371/journal.pone.0234709
UR  - https://www.webofscience.com/api/gateway?GWVersion=2&SrcApp=PARTNER_APP&SrcAuth=LinksAMR&KeyUT=WOS:000545646600006&DestLinkType=FullRecord&DestApp=ALL_WOS&UsrCustomerID=1ba7043ffcc86c417c072aa74d649202
UR  - https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0234709#references
UR  - http://hdl.handle.net/10044/1/100829
VL  - 15
ER  -
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