K. Matsuura. ``Digital Security Tokens in Network Commerce: Modeling and Derivative Application'', 8th International Conference of the Society for Computational Economics --- Computing in Economics and Finance (CEF 2002), Aix-en-Provence, France, June 2002. (Full text (PDF))
(Abstract) Digital objects in network commerce cause new credit risks (e.g. by an unpredictable compromise of a secret key and the resultant revocation of the corresponding public-key certificate). We recognize that we need to study a new financial risk management in this respect. The study firstly needs models. This paper describes a full framework of modeling uncertain digital objects distributed in a network society. We have made an abstraction of the objects and defined ``security token'', which is abbreviated into a word coinage SETOK. Each setok has its price, values, and timestamp on it as well as the main contents. Not only the price but also the values can be uncertain and may cause risks.
A number of properties of the setok are defined. They include value response to compromise, price response to compromise, refundability, tradability, online divisibility, and offline divisibility. Then a derivative written not on the price but on the value is introduced. With the help of popular stochastic theory, we derive several option-pricing formulae. These formulae do not require any divisibility of the underlying setok.
In search of applications, an inverse estimation of compromise probability is studied. We derive a partial differential equation (PDE) to price a call option; given a set of parameters including the compromise probability, the PDE can tell us the option price. By making an inverse use of this, we can estimate the risk of compromise.
In addition to related works and future directions, a comprehensive discussion on the relation between information-security technologies and economics is given. The discussion also shows how financial tools can help information security in the real world, and thus enriches the implications of this framework.
(Keywords) network commerce, information security, public-key certificate, trust, setok, option pricing, credit risk.

Back to the list in the area (English)

Back to the list in the area (Japanese)