Ultra Short Tenor Yield Curves for High-Frequency Trading and Blockchain Settlement

43 Pages Posted: 4 Mar 2018

See all articles by Anton Golub

Anton Golub

Flov technologies

Lidan Grossmass

Heinrich Heine University Dusseldorf

Ser-Huang Poon

University of Manchester - Manchester Business School

Date Written: March 2, 2018

Abstract

Blockchain, based on the distributed ledger technology, provides immediate settlement of transactions of digital assets and direct ownership. Since settlement of transactions is immediate, the blockchain system requires an ultra short tenor interest rate curve that is always up-to-date. Today, many market-quoted rates are still accrued at the end of each trading day, typically with one day as the shortest tenor available. This paper develops an interbank money market model for the equilibrium interest rate of ultra short tenor and updated at an intraday level with automated adjustment for the event of a flash crash. Apart from facilitating trades settlement on blockchain, our research findings are vital for central banks' efforts in stabilizing the currencies during flash crashes. We show that during the flash crash on 15 January 2015 when the Swiss National Bank (SNB) dropped the floor of CHF 1.2 per EUR, the ultra short CHF interest rates should have been highly negative to incentivize market makers to provide liquidity during the sharp CHF appreciation and to neutralize the arbitrage activities that aggravated the crash.

Keywords: Blockchain, Intraday Yield Curve, Flash Crash, Duration, Time Deformation

JEL Classification: G01, G12, G14, G23, C01, C15, C41, C58

Suggested Citation

Golub, Anton and Grossmass, Lidan and Poon, Ser-Huang, Ultra Short Tenor Yield Curves for High-Frequency Trading and Blockchain Settlement (March 2, 2018). Available at SSRN: https://ssrn.com/abstract=3133024 or http://dx.doi.org/10.2139/ssrn.3133024

Anton Golub

Flov technologies ( email )

Gotthardstrasse 26
Zug, Zug 6300
Switzerland

Lidan Grossmass (Contact Author)

Heinrich Heine University Dusseldorf ( email )

Universitätsstrasse 1
Duesseldorf, DE NRW 40225
Germany

Ser-Huang Poon

University of Manchester - Manchester Business School ( email )

Crawford House
Oxford Road
Manchester, Manchester M13 9PL
United Kingdom
+44 161 275 4031 (Phone)
+44 161 275 4023 (Fax)

HOME PAGE: http://www.manchester.ac.uk/research/Ser-huang.poon/

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