More on Triangular Arbitrage: Korean Won, Japanese Yen, and the Hong Kong Dollar

Triangular arbitrage has been touched on once before using the HKD, USD, and AUD currencies. The strength of this relationship within the currency markets was an early research topic.  As one of the most active and liquid markets in the world, relationships were found to show very infrequent breaks from parity.

This is a follow up to the previous post.  The following are the spreads built from high-frequency trade-and-quote date recorded on August 29, 2011.  Once again utilizing the HKD as a medium, this study includes the KRW/HKD, HKD/JPY, and KRW/JPY pairs.

The Outrights.

KRW/HKD.

HKD/JPY.

KRW/JPY.

Both pairs connected to the KRW suffer from significant increases in the bid/ask spread once the primary Asian markets close.  These increases qualify as making it irresponsible from an asset-management point of view to even transact in the KRW rates unless absolutely necessary.  The cost of doing so is counter productive.

Finding the implied values within the triangle yields a series of spreads as follows.  These are constructed from trading the synthetic values from the live, executable values.

The Spreads.

Implied KRW/HKD spread to the live KRW/HKD.

Implied HKD/JPY spread to the live HKD/JPY.

Implied KRW/JPY spread to the live KRW/JPY.