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Theory of Cryptocurrency Interest Rates

Brody, Dorje, Hughston, Lane P. and Meister, Bernard K. (2019) Theory of Cryptocurrency Interest Rates SIAM Journal on Financial Mathematics.

Brody Hughston Meister revised 26 May 2019 2.25pm.pdf - Accepted version Manuscript

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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
Divisions : Faculty of Engineering and Physical Sciences > Mathematics
Authors :
Hughston, Lane P.
Meister, Bernard K.
Date : 17 December 2019
Uncontrolled Keywords : cryptocurrencies, distributed ledger technologies, blockchains, interest rate models, pricing kernels, foreign exchange, derivatives.
Depositing User : James Marshall
Date Deposited : 27 Jan 2020 14:19
Last Modified : 27 Jan 2020 14:19

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