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Arbitraging JapanDreams of Capitalism at the End of Finance$
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Hirokazu Miyazaki

Print publication date: 2013

Print ISBN-13: 9780520273474

Published to California Scholarship Online: September 2016

DOI: 10.1525/california/9780520273474.001.0001

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Between Arbitrage and Speculation

Between Arbitrage and Speculation

(p.43) Chapter 2 Between Arbitrage and Speculation
Arbitraging Japan

Hirokazu Miyazaki

University of California Press

This chapter shows how the paper co-authored by derivatives traders Sasaki and Aoki in 1990, on the economic role of index arbitrage in defense of their index arbitrage operations, served another purpose for Aoki: the training of Sasaki in logical thinking. Rationality, in the sense of logicality, was an important element in Aoki's effort to introduce the notion of arbitrage to his team. Central to the idea of arbitrage as the basis of the pricing of derivatives products is the idea that market participants must act rationally in the sense that they seize arbitrage opportunities when they find them. Without this assumption, arbitrage is impossible. At the same time, this assumption gave rise to a particular conception of the agency of arbitrageurs. For arbitrageurs, arbitrage was both their individual action and the market mechanism itself. The chapter discusses the implications of this circular logic inherent in arbitrage for their commitment to rationality.

Keywords:   Sasaki, Aoki, index arbitrage, logical thinking, rationality, derivative trading, Japanese arbitrageurs

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