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Spontaneous symmetry breaking of arbitrage

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  • Jaehyung Choi

Abstract

We introduce the concept of spontaneous symmetry breaking to arbitrage modeling. In the model, the arbitrage strategy is considered as being in the symmetry breaking phase and the phase transition between arbitrage mode and no-arbitrage mode is triggered by a control parameter. We estimate the control parameter for momentum strategy with real historical data. The momentum strategy aided by symmetry breaking shows stronger performance and has a better risk measure than the naive momentum strategy in U.S. and South Korean markets.

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  • Jaehyung Choi, 2011. "Spontaneous symmetry breaking of arbitrage," Papers 1107.5122, arXiv.org, revised Apr 2012.
    • Handle: RePEc:arx:papers:1107.5122
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    Cited by:

    1. Jaehyung Choi & Sungsoo Choi & Wonseok Kang, 2012. "Momentum universe shrinkage effect in price momentum," Papers 1211.6517, arXiv.org.
    2. Choi, Jaehyung & Kim, Young Shin & Mitov, Ivan, 2015. "Reward-risk momentum strategies using classical tempered stable distribution," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 194-213.
    3. Jaehyung Choi, 2021. "Maximum Drawdown, Recovery, and Momentum," JRFM, MDPI, vol. 14(11), pages 1-25, November.
    4. Jaehyung Choi, 2012. "Physical approach to price momentum and its application to momentum strategy," Papers 1208.2775, arXiv.org, revised Aug 2014.
    5. Choi, Jaehyung, 2014. "Physical approach to price momentum and its application to momentum strategy," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 415(C), pages 61-72.

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