A market-based approach to managing the risk of peer-to-peer transactions

• Published in: Computer networks (Amsterdam, Netherlands : 1999) Vol. 54; no. 5; pp. 675 - 688
• Main Authors: Androutsellis-Theotokis, Stephanos, Spinellis, Diomidis, Louridas, Panos, Stroggylos, Kostas
• Format: Journal Article
• Language: English
• Published: Kidlington Elsevier B.V 08.04.2010; Elsevier; Elsevier Sequoia S.A
• Subjects: Applied sciences; Business and industry local networks; Electronic commerce; Exact sciences and technology; Financial markets; Miscellaneous; Networks; Networks and services in france and abroad; Peer to peer computing; Peer-to-peer networks; Peers; Reputation management; Risk management; Studies; Telecommunications; Telecommunications and information theory; Teleprocessing networks. Isdn; Transaction costs; Transaction processing; Transactions; Valuation and optimization of characteristics. Simulation; Reputation management; Financial markets; Transaction processing; Peer-to-peer networks; Peer to peer; Prototype; Computer network; On-line systems; Financial market; Resource sharing; Local network
• DOI: 10.1016/j.comnet.2009.10.005
• ISSN: 1389-1286

Market-based principles can be used to manage the risk of distributed peer-to-peer transactions. This is demonstrated by P trim, a system that builds a transaction default market on top of a main transaction processing system, within which peers offer to underwrite the transaction risk for a slight increase in the transaction cost. The insurance cost, determined through market-based mechanisms, is a way of identifying untrustworthy peers and perilous transactions. The risk of the transactions is contained, and at the same time members of the peer-to-peer network capitalise on their market knowledge by profiting as transaction insurers. We evaluated the approach through trials with the deployed P trim prototype, as well as composite experiments involving real online transaction data and real subjects participating in the transaction default market. We examine the efficacy of our approach both from a theoretical and an experimental perspective. Our findings suggest that the P trim market layer functions in an efficient manner, and is able to support the transaction processing system through the insurance offers it produces, thus acting as an effective means of reducing the risk of peer-to-peer transactions. In our conclusions we discuss how a system like P trim assimilates properties of real world markets, and its potential exposure and possible countermeasures to events such as those witnessed in the recent global financial turmoil.