Brody, D C; Hughston, L P and Meister, B. 2020. Theory of Cryptocurrency Interest Rates. SIAM Journal for Financial Mathematics, 11(1), pp. 148-168. ISSN 1945-497X [Article]

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Abstract or Description

A term structure model in which the short rate is zero is developed as a candidate for a theory of cryptocurrency interest rates. The price processes of crypto discount bonds are worked out, along with expressions for the instantaneous forward rates and the prices of interest-rate derivatives. The model admits functional degrees of freedom that can be calibrated to the initial yield curve and other market data. Our analysis suggests that strict local martingales can be used for modelling the pricing kernels associated with virtual currencies based on distributed ledger technologies.

Item Type:	Article
Identification Number (DOI):	https://doi.org/10.1137/19M1263042
Additional Information:	© 2020 Society for Industrial and Applied Mathematics Accepted version available at ArXiv:1904.05472v3 https://arxiv.org/abs/1904.05472 AMS subject classifications. 91G30, 91G20, 60G99
Keywords:	cryptocurrencies, distributed ledger technologies, blockchains, interest rate models, pricing kernels, foreign exchange, derivatives
Related URLs:	Publisher
Departments, Centres and Research Units:	Computing
Dates:	Date Event 17 December 2019 Accepted 3 March 2020 Published
Item ID:	28114
Date Deposited:	23 Jan 2020 09:33
Last Modified:	10 Feb 2022 03:55
Peer Reviewed:	Yes, this version has been peer-reviewed.
URI:	https://research.gold.ac.uk/id/eprint/28114

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