721,812 research outputs found
An analysis of acceptance policies for blockchain transactions
The standard acceptance policy for a cryptocurrency transaction at most exchanges is to
wait until the transaction is placed in the blockchain and followed by a certain number of blocks.
However, as noted by Sompolinsky and Zohar [16], the amount of time for blocks to arrive should
also be taken into account as it affects the probability of double spending. Specifically, they propose a
dynamic policy for transaction acceptance that depends on both the number of confirmations and the
amount of time since transaction broadcast.
In this work we study the implications of using such a policy compared with the standard option that
ignores block timing information. Using an exact expression for the probability of double spend, via
numerical results, we analyze time to transaction acceptance (performance) as well as the time and cost
to perform a double spend attack (security). We show that while expected time required for transaction
acceptance is improved using a dynamic policy, the time and cost to perform a double spend attack for
a particular transaction is reduced.First author draf
Continuous-Time Markowitz's Model with Transaction Costs
A continuous-time Markowitz's mean-variance portfolio selection problem is
studied in a market with one stock, one bond, and proportional transaction
costs. This is a singular stochastic control problem,inherently in a finite
time horizon. With a series of transformations, the problem is turned into a
so-called double obstacle problem, a well studied problem in physics and
partial differential equation literature, featuring two time-varying free
boundaries. The two boundaries, which define the buy, sell, and no-trade
regions, are proved to be smooth in time. This in turn characterizes the
optimal strategy, via a Skorokhod problem, as one that tries to keep a certain
adjusted bond-stock position within the no-trade region. Several features of
the optimal strategy are revealed that are remarkably different from its
no-transaction-cost counterpart. It is shown that there exists a critical
length in time, which is dependent on the stock excess return as well as the
transaction fees but independent of the investment target and the stock
volatility, so that an expected terminal return may not be achievable if the
planning horizon is shorter than that critical length (while in the absence of
transaction costs any expected return can be reached in an arbitrary period of
time). It is further demonstrated that anyone following the optimal strategy
should not buy the stock beyond the point when the time to maturity is shorter
than the aforementioned critical length. Moreover, the investor would be less
likely to buy the stock and more likely to sell the stock when the maturity
date is getting closer. These features, while consistent with the widely
accepted investment wisdom, suggest that the planning horizon is an integral
part of the investment opportunities.Comment: 30 pages, 1 figur
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Finite Horizon Portfolio Selection
We study the problem of maximising expected utility of terminal wealth
over a nite horizon, with one risky and one riskless asset available, and
with trades in the risky asset subject to proportional transaction costs.
In a discrete time setting, using a utility function with hyperbolic risk
aversion, we prove that the optimal trading strategy is characterised by
a function of time (t), which represents the ratio of wealth held in the
risky asset to that held in the riskless asset. There is a time varying no
transaction region with boundaries b(t) < s(t), such that the portfo-
lio is only rebalanced when (t) is outside this region. The results are
consistent with similar studies of the in nite horizon problem with in-
termediate consumption, where the no transaction region has a similar,
but time independent, characterisation. We solve the problem numerically
and compute the boundaries of the no transaction region for typical model
parameters. We show how the results can be used to implement option
pricing models with transaction costs based on utility maximisation over
a nite horizo
The transition from national currencies to the Euro.
We initiated a survey to examine whether the transition from national currencies to the Euro involved significant increases in transaction times. Based on our sample of 42 observations, we found that the pure transaction time for making change did actually increase, while queuing time increased only in small shops. This increase in transaction time represented a more significant welfare loss than most estimated studies of shoe-leather cost have previously found.
Optimal Investment with Transaction Costs and Stochastic Volatility
Two major financial market complexities are transaction costs and uncertain
volatility, and we analyze their joint impact on the problem of portfolio
optimization. When volatility is constant, the transaction costs optimal
investment problem has a long history, especially in the use of asymptotic
approximations when the cost is small. Under stochastic volatility, but with no
transaction costs, the Merton problem under general utility functions can also
be analyzed with asymptotic methods. Here, we look at the long-run growth rate
problem when both complexities are present, using separation of time scales
approximations. This leads to perturbation analysis of an eigenvalue problem.
We find the first term in the asymptotic expansion in the time scale parameter,
of the optimal long-term growth rate, and of the optimal strategy, for fixed
small transaction costs.Comment: 27 pages, 4 figure
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