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Blockchain-Based Implementation of Smart Contract and Risk Management for Interest Rate Swap

  • Xiaowei DingEmail author
  • Hongyao Zhu
Conference paper
  • 7 Downloads
Part of the Communications in Computer and Information Science book series (CCIS, volume 1176)

Abstract

Blockchain is a decentralized infrastructure that has attracted more and more attention from financial institutions due to its irreplaceable advantages. We implemented a blockchain solution for interest rate swap based on the Corda platform. Based on Andersen et al. [8], we derive a risk estimation model for blockchain empowered interest rate swap trading. We conjecture that most of problems in today’s derivative markets could potentially be relieved. For example, through our numerical experiment, we find that with blockchain, both the expected risk exposure and dynamic initial margin decrease significantly, which reduces the risk in interest rate swap trading and increases market liquidity. At the same time, we expect the Effective Expected Positive Exposure(EEPE) in the Basel III standard to decrease. Next, we plan to conduct more mathematical and numerical analysis and continue working on improving our blockchain based trading implementation and risk management model.

Keywords

Blockchain R3 Corda Risk Weighted Assets (RWA) Effective expected positive exposure(EEPE) Dynamic initial margin Variation margin Interest rate swap Risk management Basel III 

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Copyright information

© Springer Nature Singapore Pte Ltd. 2020

Authors and Affiliations

  1. 1.School of Information ManagementNanjing UniversityNanjingChina
  2. 2.Kuang Yaming Honors SchoolNanjing UniversityNanjingChina
  3. 3.Inclusive & Rural Financial Technology Innovation Research CenterNanjing UniversityNanjingChina

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