Invoice Discounting Using Kelly Criterion by Automated Market Makers-like Implementations

Funding shortages are a persistent issue, particularly for small and medium-sized enterprises (SMEs), and the problem tends to worsen cyclically. The market for factoring and invoice discounting aims to address delays in payment for commercial invoices. These involves sellers present unpaid invoices...

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Detalhes bibliográficos
Autores: Esteva, Peplluis R., El-Fakdi, Andrés, Ballesteros Rodríguez, Alberto|||0000-0001-6357-8916
Formato: artículo
Fecha de publicación:2023
País:España
Recursos:Universidad de Alcalá (UAH)
Repositorio:e_Buah Biblioteca Digital Universidad de Alcalá
Idioma:inglés
OAI Identifier:oai:ebuah.uah.es:10017/67747
Acesso em linha:http://hdl.handle.net/10017/67747
https://dx.doi.org/10.3390/math11071673
Access Level:acceso abierto
Palavra-chave:Blockchain
Autonomous market maker
Invoice discounting
Kelly criterion
rkAMM
Netting
Informática
Computer science
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spelling Invoice Discounting Using Kelly Criterion by Automated Market Makers-like ImplementationsEsteva, Peplluis R.El-Fakdi, AndrésBallesteros Rodríguez, Alberto|||0000-0001-6357-8916BlockchainAutonomous market makerInvoice discountingKelly criterionrkAMMNettingInformáticaComputer scienceFunding shortages are a persistent issue, particularly for small and medium-sized enterprises (SMEs), and the problem tends to worsen cyclically. The market for factoring and invoice discounting aims to address delays in payment for commercial invoices. These involves sellers present unpaid invoices to financial organizations, typically banks, who provide an advance payment. The implementations of the factoring services without intermediaries in blockchain of the state of the art are all based on the publication on-chain of all the invoices, use know your customer (KYC) mechanisms, and over-collateralize the invoices. This article proposes a new, decentralized approach to lending services that completely eliminates intermediaries and does not require strong KYC, yet it is reasonably resilient. The approach uses liquidity pools and associated heuristics to create a model of risk compensation. In this model, a formula measures the contributed collateral to an invoice and the risk of a late invoice or non-payment, using the Kelly criterion to calculate the optimal premium for funding said invoice in the liquidity pool. The algorithm?s performance is tested in many scenarios involving several invoice amounts, collaterals, payment delays, and non-payment rates. The study also examines premium distribution policies and hack scenarios involving bogus, non-payable invoices. The outcome is a decentralized market that uses the Kelly criterion and is reasonably resilient to a wide range of invoicing scenarios, including 5% non-payment rates and 10% bogus invoices, yet provides a sound profit to liquidity providers. The algorithm?s resilience is enhanced by several premium distribution policies over partially collateralized invoices from 50 to 70%, resulting in optimal premium withdrawal policies every 30 days, making it the first protocol for loanable funds that does not require over-collateralization to be profitable and resilient.University College LondonMDPI20232023-03-30journal articlehttp://purl.org/coar/resource_type/c_6501NAhttp://purl.org/coar/version/c_be7fb7dd8ff6fe43info:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/10017/67747https://dx.doi.org/10.3390/math11071673reponame:e_Buah Biblioteca Digital Universidad de Alcaláinstname:Universidad de Alcalá (UAH)Inglésengopen accesshttp://purl.org/coar/access_right/c_abf2Attribution 4.0 Internationalhttp://creativecommons.org/licenses/by/4.0/info:eu-repo/semantics/openAccessoai:ebuah.uah.es:10017/677472026-06-18T11:13:07Z
dc.title.none.fl_str_mv Invoice Discounting Using Kelly Criterion by Automated Market Makers-like Implementations
title Invoice Discounting Using Kelly Criterion by Automated Market Makers-like Implementations
spellingShingle Invoice Discounting Using Kelly Criterion by Automated Market Makers-like Implementations
Esteva, Peplluis R.
Blockchain
Autonomous market maker
Invoice discounting
Kelly criterion
rkAMM
Netting
Informática
Computer science
title_short Invoice Discounting Using Kelly Criterion by Automated Market Makers-like Implementations
title_full Invoice Discounting Using Kelly Criterion by Automated Market Makers-like Implementations
title_fullStr Invoice Discounting Using Kelly Criterion by Automated Market Makers-like Implementations
title_full_unstemmed Invoice Discounting Using Kelly Criterion by Automated Market Makers-like Implementations
title_sort Invoice Discounting Using Kelly Criterion by Automated Market Makers-like Implementations
dc.creator.none.fl_str_mv Esteva, Peplluis R.
El-Fakdi, Andrés
Ballesteros Rodríguez, Alberto|||0000-0001-6357-8916
author Esteva, Peplluis R.
author_facet Esteva, Peplluis R.
El-Fakdi, Andrés
Ballesteros Rodríguez, Alberto|||0000-0001-6357-8916
author_role author
author2 El-Fakdi, Andrés
Ballesteros Rodríguez, Alberto|||0000-0001-6357-8916
author2_role author
author
dc.subject.none.fl_str_mv Blockchain
Autonomous market maker
Invoice discounting
Kelly criterion
rkAMM
Netting
Informática
Computer science
topic Blockchain
Autonomous market maker
Invoice discounting
Kelly criterion
rkAMM
Netting
Informática
Computer science
description Funding shortages are a persistent issue, particularly for small and medium-sized enterprises (SMEs), and the problem tends to worsen cyclically. The market for factoring and invoice discounting aims to address delays in payment for commercial invoices. These involves sellers present unpaid invoices to financial organizations, typically banks, who provide an advance payment. The implementations of the factoring services without intermediaries in blockchain of the state of the art are all based on the publication on-chain of all the invoices, use know your customer (KYC) mechanisms, and over-collateralize the invoices. This article proposes a new, decentralized approach to lending services that completely eliminates intermediaries and does not require strong KYC, yet it is reasonably resilient. The approach uses liquidity pools and associated heuristics to create a model of risk compensation. In this model, a formula measures the contributed collateral to an invoice and the risk of a late invoice or non-payment, using the Kelly criterion to calculate the optimal premium for funding said invoice in the liquidity pool. The algorithm?s performance is tested in many scenarios involving several invoice amounts, collaterals, payment delays, and non-payment rates. The study also examines premium distribution policies and hack scenarios involving bogus, non-payable invoices. The outcome is a decentralized market that uses the Kelly criterion and is reasonably resilient to a wide range of invoicing scenarios, including 5% non-payment rates and 10% bogus invoices, yet provides a sound profit to liquidity providers. The algorithm?s resilience is enhanced by several premium distribution policies over partially collateralized invoices from 50 to 70%, resulting in optimal premium withdrawal policies every 30 days, making it the first protocol for loanable funds that does not require over-collateralization to be profitable and resilient.
publishDate 2023
dc.date.none.fl_str_mv 2023
2023-03-30
dc.type.none.fl_str_mv journal article
http://purl.org/coar/resource_type/c_6501
NA
http://purl.org/coar/version/c_be7fb7dd8ff6fe43
dc.type.openaire.fl_str_mv info:eu-repo/semantics/article
format article
dc.identifier.none.fl_str_mv http://hdl.handle.net/10017/67747
https://dx.doi.org/10.3390/math11071673
url http://hdl.handle.net/10017/67747
https://dx.doi.org/10.3390/math11071673
dc.language.none.fl_str_mv Inglés
eng
language_invalid_str_mv Inglés
language eng
dc.rights.none.fl_str_mv open access
http://purl.org/coar/access_right/c_abf2
Attribution 4.0 International
http://creativecommons.org/licenses/by/4.0/
dc.rights.openaire.fl_str_mv info:eu-repo/semantics/openAccess
rights_invalid_str_mv open access
http://purl.org/coar/access_right/c_abf2
Attribution 4.0 International
http://creativecommons.org/licenses/by/4.0/
eu_rights_str_mv openAccess
dc.format.none.fl_str_mv application/pdf
dc.publisher.none.fl_str_mv MDPI
publisher.none.fl_str_mv MDPI
dc.source.none.fl_str_mv reponame:e_Buah Biblioteca Digital Universidad de Alcalá
instname:Universidad de Alcalá (UAH)
instname_str Universidad de Alcalá (UAH)
reponame_str e_Buah Biblioteca Digital Universidad de Alcalá
collection e_Buah Biblioteca Digital Universidad de Alcalá
repository.name.fl_str_mv
repository.mail.fl_str_mv
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