Pricing Liquidity Risk in Stablecoins

Pricing Liquidity Risk in Stablecoins

• Autor
• João Pedro Malim Franco
• Resumo

• This paper proposes a no-arbitrage framework for modeling stablecoin prices using a latent liquidity risk premium driven by affine jump--diffusion dynamics. We consider two alternative specifications: a CIR--jumps model, which enforces non-negativity and state-dependent volatility, and a Vasicek--jumps model, which allows for symmetric deviations around parity. The latent liquidity factor and structural parameters are jointly estimated using a Particle Markov Chain Monte Carlo (PMCMC) algorithm within a nonlinear state-space setting. The approach captures both gradual liquidity adjustments and rare but significant de-pegging events.  The affine structure ensures analytical tractability for pricing derivatives and computing forward-looking risk measures such as Value at Risk and Expected Shortfall. Overall, the framework provides a structurally consistent and empirically flexible tool for valuation and risk assessment in stablecoin markets.

• Palavras-chave
• Stablecoin pricing, Liquidity risk premium, Affine jump-diffusion, Particle markov chain monte carlo, Value at risk and expected shortfall
• Modalidade
• Comunicação oral
• Área Temática
• Econometria Financeira

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