Optimal Bitcoin Trading with Inverse Futures

31 Pages Posted: 24 Aug 2019

See all articles by Jun Deng

Jun Deng

University of International Business and Economics (UIBE) - School of Banking and Finance

Huifeng Pan

University of International Business and Economics (UIBE)

Shuyu Zhang

Zhongnan University of Economics and Law; Zhongnan University of Economics and Law

Bin Zou

University of Connecticut - Department of Mathematics

Date Written: August 23, 2019

Abstract

We consider an optimal trading problem for an investor who trades Bitcoin spot and Bitcoin inverse futures, plus a risk-free asset. The investor seeks an optimal strategy to maximize her expected utility of terminal wealth. We obtain explicit solutions to the investor's optimal strategies under both exponential and power utility functions. Empirical studies con rm that optimal strategies perform well in terms of Sharpe ratio and Sortino ratio and beat the long-only strategy in Bitcoin spot.

Keywords: Bitcoin; Inverse Futures; Optimal Investment; Utility Maximization

Suggested Citation

Deng, Jun and Pan, Huifeng and Zhang, Shuyu and Zou, Bin, Optimal Bitcoin Trading with Inverse Futures (August 23, 2019). Available at SSRN: https://ssrn.com/abstract=3441913 or http://dx.doi.org/10.2139/ssrn.3441913

Jun Deng

University of International Business and Economics (UIBE) - School of Banking and Finance ( email )

No.10, Huixindong Street
Chaoyang District
Beijing, 100029
China

Huifeng Pan

University of International Business and Economics (UIBE)

10, Huixin Dongjie
Changyang District
Beijing, Beijing 100029
China

Shuyu Zhang

Zhongnan University of Economics and Law ( email )

No.143, Wuluo Road
Wuhan, Hubei 430073
China

Zhongnan University of Economics and Law ( email )

182 Nanhu Avenue
East Lake High-tech Development
Wuhan, HUBEI 100029
China

Bin Zou (Contact Author)

University of Connecticut - Department of Mathematics ( email )

341 Mansfield Road U1009
Department of Mathematics
Storrs, CT 06269-1069
United States

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