‘Smart’ derivatives can cure XVA headaches

key-in-question-mark-shutterstock-116112493 — Cryptocurrency technology may hold the key. Photo: Shutterstock

Massimo Morini, Robert Sams
27 Aug 2015

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Imagine a derivatives contract that could value itself in real time, automatically calculate and perform margin payments, and even terminate itself in the event of a counterparty default. Though it sounds like science fiction, it may soon be a reality.

The technological advances behind cryptocurrencies such as bitcoin, which combine novel applications of cryptography with the computer science of consensus algorithms for distributed networks, can be used to create these ‘smart' derivatives

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