The paper focuses on the market equilibrium conditions in forward exchange quotes. By careful analysis of the market arbitrage conditions, market supply and demand, we construct the equilibrium ranges for bid and ask forward quotes separately. We present our analysis in a bid-ask cost structure...

Existing studies on the informational content of at-the-money implied volatility (ATMIV) and past realized volatility (PRV) and the relation between the two have mainly focused on a single short forecast horizon and conclude that ATMIV outperforms PRV. We examine the relation between implied and...

This paper presents a generalized serial covariance spread pricing model that unifies and improves existing spread models. We analyze three cost components of spread: order processing, adverse information, and inventory holding costs. We modify Stoll's (1989) model by incorporating a two-period...

Necessary conditions are derived for the simultaneous existence of ineffective triangular arbitrage and effective higher-order arbitrage in currency markets. Such conditions are possible when market constraints, in the form of differential rates of taxation on currency trades, inhibit effective...