Risks And returns Of fixed income arbitrage strategies in varying economic environments : a model based on empirical considerations
Name
890376008-MIT.pdf
Description
Full printable version
Size
14.47 MB
Format
Adobe PDF
Checksum (MD5)
c97af741460baaf573b9d430221c66a3
Author(s)
Beunardeau, Roland
Advisor(s)
Hui Chen.
Date Issued
2014
Publisher
Massachusetts Institute of Technology
Abstract
I propose a discrete time model of financial markets in which an arbitrageur has investment opportunities but faces a number of financial constraints. Investment opportunities arise when the price discrepancy between a pair of similar assets becomes large enough. I propose an innovative way to model the effects of market liquidity and the arbitrage industry's reversion force on a stochastic price discrepancy. I use empirical studies and common literature assumptions to build and calibrate the model. I then run a set of Monte-Carlo simulations to test the model's response to the risks and returns of a number of arbitrage strategies in varying economic conditions. The model's results are in line with a number of theories in the existing literature, and specifically confirm the role of the arbitrageur as a liquidity provider in disturbed market environments.
Description
Thesis: S.M. in Management Studies, Massachusetts Institute of Technology, Sloan School of Management, 2014.
Cataloged from PDF version of thesis.
Includes bibliographical references (pages 164-165).
Subjects
Sloan School of Management.
MIT Department
Sloan School of Management
Terms of Use
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