Brandt, Michael W.; Diebold, Francis X. - Center for Financial Studies - 2004
, absence of arbitrage,
exchange rates, stock returns, bond returns, bid-ask bounce, asynchronous trading
1
The … cross rate. Consider two dollar exchange rates, denoted A/$
and B/$. Then, in the absence of triangular arbitrage, the …-denominated exchange rates
and evolve as driftless diffusions with annualized volatilities σ of 15 percent, a covariance of 0.9,P
1
P
2 …