Nonlinear Prediction of Chaotic Time Series

Bitcoin gains more and more attention in the general public and is already the most popular virtual currency. At the same time, the acceptance of Bitcoin as a speculative asset and also as a payment vehicle increases. This is an indication that we might now be entering an era of parallel currency systems. Therefore, one could state that the Bitcoin network and the central banking system could become two rival systems with respect to issuing payment vehicles and providing cross-border payment systems. Our aim is to analyse the central bank incentives for establishing a network model that includes hacking. With our model we are able to explain why central banks have no incentive to advance Bitcoin regulation at the current stage of development, as this would reduce the critical mass of Bitcoin users. Finally, in combination with a central bank loss function, we are able to calculate an optimal level of central regulation.

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Central Bank Behaviour Concerning the Level of Bitcoin Regulation as a Policy Variable

Synthetic cash, which is a pure product of financial engineering, can be defined as a combination of financial instruments that provide (before tax) a performance equal to that of a traditional monetary deposit but without the use of a debt or interest payment instrument. This article discusses the taxation of synthetic cash in Switzerland and shows that synthetic cash can generate tax-free income when adequately structured. This also creates a tax incentive for sophisticated private investors to avoid taxes by holding synthetic cash rather than monetary deposits. In addition, the article explores the various defense mechanisms available to the Swiss tax authorities when fighting against synthetic cash. Finally, it examines virtual currencies, which have recently emerged and could constitute the next generation of synthetic cash.

	 

	Key words: Taxation, cash management, financial engineering, tax avoidance.

Tax-free synthetic cash for individuals: A theoretical review of the Swiss case

This paper uses simple monetary economic theory in order to extract implied BTC interest rates from exchange rates, interest rates and monetary supply data. Uncovered interest rate parity permits to derive a theoretical risk free BTC interest rate that is supposed to apply in a no arbitrage environment with rational expectations. Application to BTC/US$ exchange rates, Libor and Money supply US M2 data on the period September 2010 to January 2014 provides estimates, which illustrate what a risk free BTC interest rate could look like.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2432367_code2201245.pdf?abstractid=2432367&mirid=1

The Time Value of a Digital Currency: Bitcoin Interest Rates Dynamics

In an application to the CAC40 daily's returns, a trading rule based on predictions given by the nearest neighbour method is shown to exhibit higher profitability than a buy-and-hold strategy only for low transactions costs and during high volatility episodes. Those results are interpreted as a sign of the relative inefficiency of the french stock market during abnormally high volatility episodes.

Nonlinear Technical Trading Rules Profits and Relative Efficiency: Evidence from the French Market

Predictive performance of the nearest neighbor method is compared with those by the martingale model and the mean value predictor for the euro/dollar exchange rates returns Results bode poorly for conjecture that the euro/dollar dynamics contains nonlinearities exploitable for enhanced point prediction or for directional forecast

Nonlinear Forecasts of Foreign Exchange Rates: First Results for the Euro/dollar Dynamics

This paper shows how the method of surrogate data can help to assess statistical significance to the forecasting performance of a model. In an application to U.S. long term interest rates, the forecasts given by a non-linear predictor are evaluated for level and sign prediction. Surrogate data are then used to assess the statistical significance of results.

Nicolas Wesner

Papers

The Time Value of a Digital Currency: Bitcoin Interest Rates Dynamics

Nonlinear Technical Trading Rules Profits and Relative Efficiency: Evidence from the French Market

Nonlinear Forecasts of Foreign Exchange Rates: First Results for the Euro/dollar Dynamics

Assessing Predictability with Surrogate Data