Financial innovation and arbitrage in the Spanish bond market

This paper empirically tests the level of sequential arbitrage in the Spanish bond market. The test is implemented by drawing on default free and option free pure discount and coupon bonds issued by the Spanish government. This fact seems to be a clear distinction between this paper and the related empirical literature since there are no risky bonds or derivative securities involved in our analysis. As a consequence, the sequential arbitrage absence is just equivalent to the existence of a term structure of interest rates matching the whole set of bond prices as provided by The Bank of Spain. Thus, the main conclusions seem to be robust because they only depend on very general and simple hypotheses and, particularly, no dynamic assumptions are required. The results of the empirical analysis may be useful to traders and researchers since it seems to reveal the existence of sequential arbitrage. Furthermore, the number of arbitrage opportunities significantly increased in 1998, when important innovations were implemented and, amongst other new possibilities, agents began trading each whole bond and its coupons (strips) separately. The inexperience associated with financial innovations may lead to ine¢ciencies in the market

Financial innovation and arbitrage in the Spanish bond market

This paper empirically tests the level of sequential arbitrage in the Spanish bond market. The test is implemented by drawing on default free and option free pure discount and coupon bonds issued by the Spanish government. This fact seems to be a clear distinction between this paper and the related empirical literature since there are no risky bonds or derivative securities involved in our analysis. As a consequence, the sequential arbitrage absence is just equivalent to the existence of a term structure of interest rates matching the whole set of bond prices as provided by The Bank of Spain. Thus, the main conclusions seem to be robust because they only depend on very general and simple hypotheses and, particularly, no dynamic assumptions are required. The results of the empirical analysis may be useful to traders and researchers since it seems to reveal the existence of sequential arbitrage. Furthermore, the number of arbitrage opportunities signi…cantly increased in 1998, when important innovations were implemented and, amongst other new possibilities, agents began trading each whole bond and its coupons (strips) separately. The inexperience associated with …nancial innovations may lead to ine¢ciencies in the market.

Dispersion measures as immunization risk measures

The quadratic and linear cash flow dispersion measures M2 and Ñ are two immunization risk measures designed to build immunized bond portfolios. This paper generalizes these two measures by showing that any dispersion measure is an immunization risk measure and therefore, it sets up a tool to be used in empirical testing. Each new measure is derived from a different set of shocks (changes on the term structure of interest rates) and depends on the corresponding subset of worst shocks. Consequently, a criterion for choosing appropriate immunization risk measures is to take those developed from the most reasonable sets of shocks and the associated subset of worst shocks and then select those that work best empirically. Adopting this approach, this paper then explores both numerical examples and a short empirical study on the Spanish Bond Market in the mid-1990s to show that measures between linear and quadratic are the most appropriate, and amongst them, the linear measure has the best properties. This confirms previous studies on US and Canadian markets that maturity-constrained-duration-matched portfolios also have good empirical behavior.Publicad

Towards an Abstract Domain for Resource Analysis of Logic Programs Using Sized Types

We present a novel general resource analysis for logic programs based on sized types.Sized types are representations that incorporate structural (shape) information and allow expressing both lower and upper bounds on the size of a set of terms and their subterms at any position and depth. They also allow relating the sizes of terms and subterms occurring at different argument positions in logic predicates. Using these sized types, the resource analysis can infer both lower and upper bounds on the resources used by all the procedures in a program as functions on input term (and subterm) sizes, overcoming limitations of existing analyses and enhancing their precision. Our new resource analysis has been developed within the abstract interpretation framework, as an extension of the sized types abstract domain, and has been integrated into the Ciao preprocessor, CiaoPP. The abstract domain operations are integrated with the setting up and solving of recurrence equations for both, inferring size and resource usage functions. We show that the analysis is an improvement over the previous resource analysis present in CiaoPP and compares well in power to state of the art systems.Comment: Part of WLPE 2013 proceedings (arXiv:1308.2055