Cryptocurrency portfolio optimization with multivariate normal tempered stable processes and Foster-Hart risk

Kurosaki, Tetsuo; Kim, Young S.

doi:10.1016/j.frl.2021.102143

Cited by 8 publications

(2 citation statements)

References 16 publications

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“…Moreover, setting expected returns and covariance matrix, the two key optimisation inputs, based on the historical data results in very high estimation errors, leading to poor performance. One potential solution is employing advanced optimisation tools to generate more accurate estimates and reduce estimation errors, such as Black-Litterman optimisation with variance-based constraints (Platanakis and Urquhart, 2019) and weight optimisation via Foster-Hart risk (Kurosaki and Kim, 2022).…”

Section: Connectedness Among Cryptocurrenciesmentioning

confidence: 99%

Cryptocurrency puzzles: a comprehensive review and re-introduction

Cai,

Xue,

Zhou

2023

JAL

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Purpose This study reviews existing cryptocurrency research to provide answers to three puzzles in the literature. First, is cryptocurrency more like gold (i.e., a commodity) or should it be classified as a new financial asset? Second, can we apply our knowledge of the traditional capital market to the emerging cryptocurrency market? Third, what might be the future of cryptocurrency?Design/methodology/approach Bibliometric analysis is used to assess 2,098 finance-related cryptocurrency publications from the Web of Science (WoS) Core Collection database from January 2009 to April 2022. Three key research streams are identified, namely, (1) cryptocurrency features, (2) behaviour of the cryptocurrency market and (3) blockchain implications.Findings First, cryptocurrency should be viewed and regulated as a new asset class rather than a currency or a new commodity. While it can provide diversification benefits to the portfolio, cryptocurrency cannot work as a safe haven asset. Second, crypto markets are typically inefficient. Asset bubbles exist and are exacerbated by behavioural finance factors. Third, cryptocurrency demonstrates increasing potential as a medium of exchange and store of value.Originality/value Extant review papers primarily study one or two particular research topics, overlooking the interaction between topics. The few existing systematic literature reviews in this area typically have a narrow focus on trend identification. This study is the first study to provide a comprehensive review of all financial-related studies on cryptocurrency, synthesising the research findings from 2,098 publications to answer three cryptocurrency puzzles.

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Section: Connectedness Among Cryptocurrenciesmentioning

confidence: 99%

Cryptocurrency puzzles: a comprehensive review and re-introduction

Cai,

Xue,

Zhou

2023

JAL

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“…In addition, Kim et al (2015) applies a Lévy process generated by the two-dimensional NTS distribution to Quanto option pricing, and its extension to capture stochastic dependence is further discussed in Kim et al (2023). Recently, the NTS distribution was applied to cryptocurrency portfolio optimization in Kurosaki and Kim (2022).…”

Section: Introductionmentioning

confidence: 99%

Portfolio Optimization with Relative Tail Risk

Kim¹

2023

Preprint

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This paper proposes analytic forms of portfolio CoVaR and CoCVaR on the normal tempered stable market model. Since CoCVaR captures the relative risk of the portfolio with respect to a benchmark return, we apply it to the relative portfolio optimization. Moreover, we derive analytic forms for the marginal contribution to CoVaR and the marginal contribution to CoCVaR. We discuss the Monte-Carlo simulation method to calculate CoCVaR and the marginal contributions of CoVaR and CoCVaR. As the empirical illustration, we show relative portfolio optimization with thirty stocks under the distress condition of the Dow Jones Industrial Average. Finally, we perform the risk budgeting method to reduce the CoVaR and CoCVaR of the portfolio based on the marginal contributions to CoVaR and CoCVaR.

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