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ERIC Number: EJ918373
Record Type: Journal
Publication Date: 2011-Apr
Pages: 8
Abstractor: As Provided
Reference Count: 4
ISBN: N/A
ISSN: ISSN-0020-739X
Currency Arbitrage Detection Using a Binary Integer Programming Model
Soon, Wanmei; Ye, Heng-Qing
International Journal of Mathematical Education in Science and Technology, v42 n3 p369-376 Apr 2011
In this article, we examine the use of a new binary integer programming (BIP) model to detect arbitrage opportunities in currency exchanges. This model showcases an excellent application of mathematics to the real world. The concepts involved are easily accessible to undergraduate students with basic knowledge in Operations Research. Through this work, students can learn to link several types of basic optimization models, namely linear programming, integer programming and network models, and apply the well-known sensitivity analysis procedure to accommodate realistic changes in the exchange rates. Beginning with a BIP model, we discuss how it can be reduced to an equivalent but considerably simpler model, where an efficient algorithm can be applied to find the arbitrages and incorporate the sensitivity analysis procedure. A simple comparison is then made with a different arbitrage detection model. This exercise helps students learn to apply basic Operations Research concepts to a practical real-life example, and provides insights into the processes involved in Operations Research model formulations. (Contains 1 table.)
Taylor & Francis, Ltd. 325 Chestnut Street Suite 800, Philadelphia, PA 19106. Tel: 800-354-1420; Fax: 215-625-2940; Web site: http://www.tandf.co.uk/journals
Publication Type: Journal Articles; Reports - Evaluative
Education Level: Higher Education
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: N/A