Related papers: Leverage Staking with Liquid Staking Derivatives (…
As smart contract platforms autonomously manage billions of dollars of capital, quantifying the portfolio risk that investors engender in these systems is increasingly important. Recent work illustrates that Proof of Stake (PoS) is…
The Proof of Efficient Liquidity (PoEL) protocol, designed for specialised Proof of Stake (PoS) consensus-based blockchains that incorporate intrinsic DeFi applications, aims to support sustainable liquidity bootstrapping and network…
Electrochemical energy storage (ES) units (e.g. batteries) have been field-validated as an efficient back-up resource that enhance resilience of the distribution system in case of natural disasters. However, using these units for resilience…
Research in quantitative finance has demonstrated that reinforcement learning (RL) methods have delivered promising outcomes in the context of hedging financial portfolios. For example, hedging a portfolio of European options using RL…
Daily leveraged exchange traded funds amplify gains and losses of their underlying benchmark indexes on a daily basis. The result of going long in a daily leveraged ETF for more than one day is less clear. Here, bounds are given for the…
Recently, two attacks were presented against Proof-of-Stake (PoS) Ethereum: one where short-range reorganizations of the underlying consensus chain are used to increase individual validators' profits and delay consensus decisions, and one…
We examine strategically incorporating broad stock market leveraged exchange-traded funds (LETFs) into investment portfolios. We demonstrate that easily understandable and implementable strategies can enhance the risk-return profile of a…
Liquidity Providers on Automated Market Makers generate millions of USD in transaction fees daily. However, the net value of a Liquidity Position is vulnerable to price changes in the underlying assets in the pool. The dominant measure of…
Level set estimation (LSE), the problem of identifying the set of input points where a function takes value above (or below) a given threshold, is important in practical applications. When the function is expensive-to-evaluate and…
This work studies the deep learning-based numerical algorithms for optimal hedging problems in markets with general convex transaction costs on the trading rates, focusing on their scalability of trading time horizon. Based on the…
On November 22nd 2022, the lending platform AAVE v2 (on Ethereum) incurred bad debt resulting from a major liquidation event involving a single user who had borrowed close to \$40M of CRV tokens using USDC as collateral. This incident has…
In this paper, we study an investor's optimal entry and exit decisions in a liquid staking protocol (LSP) and an automated market maker (AMM), primarily from the standpoint of the investor. Our analysis focuses on two key investor actions:…
Ethereum contracts can be designed to function as fully decentralized applications called DAPPs. Many DAPPs have already been fielded, including an online marketplace, a role playing game, a prediction market, and an Internet service…
Decentralized finance introduces new business models and use cases as part of digital finance. Restaking has recently emerged as a transformative mechanism in DeFi, promising extra yields but introducing complex and interconnected risks.…
We investigate the problem of pricing and hedging derivatives of Electricity Futures contract when the underlying asset is not available. We propose to use a cross hedging strategy based on the Futures contract covering the larger delivery…
Barrier derivatives depend on extrema and first-passage events and are therefore highly sensitive to volatility dynamics -- especially to the instantaneous return-volatility correlation $\rho$, often called ``leverage''. This sensitivity…
We present a framework for hedging a portfolio of derivatives in the presence of market frictions such as transaction costs, market impact, liquidity constraints or risk limits using modern deep reinforcement machine learning methods. We…
A common belief is that leveraged ETFs (LETFs) suffer long-term performance decay due to \emph{volatility drag}. We show that this view is incomplete: LETF performance depends fundamentally on return autocorrelation and return dynamics. In…
We study the problem of optimal pricing and hedging of a European option written on an illiquid asset $Z$ using a set of proxies: a liquid asset $S$, and $N$ liquid European options $P_i$, each written on a liquid asset $Y_i, i=1,N$. We…
In this paper, we argue that, once the costs of maintaining the hedging portfolio are properly taken into account, semi-static portfolios should more properly be thought of as separate classes of derivatives, with non-trivial,…