The authors demonstrate the construction of an optimal dynamic portfolio of cryptoassets that minimizes either return variance or conditional value at risk. One can view such a portfolio as a minimum-risk index for this asset class. They carefully backtested the dynamic portfolio model and developed a fair valuation model for options based on a dynamic pricing model for the underlying cryptoasset index. They obtain the valuation by passing from the natural world to the equivalent martingale measure via the Esscher transform. The work underscores the need for a cryptoasset index–based exchange-traded fund, the development of derivatives, particularly for cryptoportfolio insurance purposes, and the development of (nearly) riskless rates for this asset class.
|Number of pages||19|
|Journal||Journal of Alternative Investments|
|State||Published - Jun 2021|
- Quantitative methods
- Statistical methods
- VAR and use of alternative risk measures of trading risk