A natural liquidity mismatch emerges when liquid exchange traded funds (ETFs) hold relatively illiquid assets. We provide a theory and empirical evidence showing that this liquidity mismatch can reduce market efficiency and increase the fragility of these ETFs. We focus on corporate bond ETFs...

Covered interest parity (CIP) is the theoretical relationship that explains the price difference between spot and forward exchange rates in terms of the interest rate differential between the home and the foreign currency. CIP arbitrage maintains the parity pricing between a host of financial...

In this paper, we introduce the concept of statistical arbitrage through the definition of a trading strategy that captures persistent anomalies in long-run relationships among assets. We devise a methodology to identify and test mean-reverting statistical arbitrage, and to develop trading...

The interest rate market has been expanding immensely for thirty years, both in term of volumes and diversity of traded contracts. The growing complexity of derivatives has implied a need for sophisticated models in order to price and hedge these products. Three main approaches can be...

Recent results have characterized the class of continuous sample path stochastic processes admissible as equilibrium price processes in a frictionless, continuous trading market under a no arbitrage equilibrium. These results are not complete since the role of the Markov assumption, made by all...

We characterize the discrete-time arbitrage-free Nelson-Siegel term structure model, prove the uniqueness of the solution for model identification, make specification analysis on its canonical form, and detail the MCMC estimation method with a fast and reliable prior extraction step. Using the...