Theory of Cryptocurrency Interest Rates

@article{Brody2020TheoryOC,
  title={Theory of Cryptocurrency Interest Rates},
  author={Dorje C. Brody and Lane P. Hughston and Bernhard K. Meister},
  journal={SIAM J. Financial Math.},
  year={2020},
  volume={11},
  pages={148-168}
}
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… Expand
DeFi Protocols for Loanable Funds: Interest Rates, Liquidity and Market Efficiency
TLDR
This paper reviews the methodologies used to set interest rates on three prominent DeFi PLFs, namely Compound, Aave and dYdX and investigates the market efficiency and inter-connectedness between multiple protocols, examining whether Uncovered Interest Parity holds within a particular protocol and whether the interest rates for a particular token market show dependence across protocols. Expand

References

SHOWING 1-10 OF 38 REFERENCES
Bond pricing and the term structure of interest rates
This paper presents a unifying theory for valuing contingent claims under a stochastic term structure of interest rates. The methodology, based on the equivalent martingale measure technique, takesExpand
A Theory of the Nominal Term Structure of Interest Rates
A model of the nominal term structure of interest rates is developed that has a positive and stationary process for the interest rate and delivers closed-form expressions for the prices of discountExpand
The Potential Approach to the Term Structure of Interest Rates and Foreign Exchange Rates
It is possible to specify a model for interest rates in various ways, by giving the dynamics of the spot rate or of the forward rates, for example. A less well–developed approach is to specify theExpand
Advanced model calibration on bitcoin options
TLDR
This paper calibrates a series of Markov models on the option surface and examines their pricing performance and the optimal risk-neutral model parameters over a period of 2 months, concluding with a study of the implied liquidity of BTC call options, based on conic finance theory. Expand
A chaotic approach to interest rate modelling
TLDR
A general “international” model for interest rates and foreign exchange is outlined, for which each currency admits an associated family of discount bonds, and it is shown that the entire system can be generated by a vector of Wiener functionals. Expand
Bubbles and Multiple-Factor Asset Pricing Models
This paper derives a multiple-factor asset pricing model with asset price bubbles in an arbitrage-free, competitive, and frictionless market. As such it generalizes existing asset pricing models, allExpand
A Benchmark Approach to Quantitative Finance
The benchmark approach provides a general framework for financial market modeling, which extends beyond the standard risk-neutral pricing theory. It permits a unified treatment of portfolioExpand
Social Discounting and the Long Rate of Interest
The well‐known theorem of Dybvig, Ingersoll, and Ross shows that the long zero‐coupon rate can never fall. This result, which, although undoubtedly correct, has been regarded by many asExpand
Forward And Futures Prices With Bubbles
This paper extends and refines the Jarrow et al. (2006, 2008) arbitrage free pricing theory for bubbles to characterize forward and futures prices. Some new insights are obtained in this regard. InExpand
Chaos and coherence: a new framework for interest–rate modelling
  • D. Brody, L. Hughston
  • Mathematics
  • Proceedings of the Royal Society of London. Series A: Mathematical, Physical and Engineering Sciences
  • 2004
A set of elementary axioms for stochastic finance is presented wherein a prominent role is played by the state–price density, which in turn determines the stochastic dynamics of the interest–rateExpand
...
1
2
3
4
...