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Theory of cryptocurrency interest rates. (English) Zbl 1443.91306

Summary: 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 modeling the pricing kernels associated with virtual currencies based on distributed ledger technologies.

MSC:

91G30 Interest rates, asset pricing, etc. (stochastic models)
91G20 Derivative securities (option pricing, hedging, etc.)
60G99 Stochastic processes
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