Mining the hedge and arbitrage of the Taiwan foreign exchange market

The foreign exchange market is one of the biggest markets in the global financial capital market. With current trends toward financial capital globalization, it is becoming more important to understand the hedge and arbitrage of foreign exchange markets. Thus, this study implements association rules as a data mining approach to explore the associations among 19 different pairs of foreign exchange rates. Transaction data, such as foreign exchange rates, were collected to construct a database; the Apriori algorithm was then used to generate the association rules. By doing so, this study proposes several possible portfolio alternatives in the Taiwan foreign exchange market, including foreign exchange hedge and arbitrage under different circumstances. 2011 Elsevier Ltd. All rights reserved.