Minimum-Variance Hedging of Bitcoin Inverse Futures

Accepted in Applied Economics

29 Pages Posted: 18 Mar 2020 Last revised: 7 Jul 2020

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: June 24, 2020

Abstract

We formulate an optimal hedging problem of Bitcoin inverse futures under the minimumvariance framework. We obtain the optimal hedging strategy in closed forms for both short and long hedges, and compute hedging efficiency under the optimal strategy. Our empirical studies show that the optimal hedging strategy achieves superior effectiveness in reducing risk and beats the naıve hedge in all scenarios.

Keywords: Bitcoin, Futures, Hedging efficiency, Risk management

JEL Classification: G11, G32

Suggested Citation

Deng, Jun and Pan, Huifeng and Zhang, Shuyu and Zou, Bin, Minimum-Variance Hedging of Bitcoin Inverse Futures (June 24, 2020). Accepted in Applied Economics, Available at SSRN: https://ssrn.com/abstract=3542534 or http://dx.doi.org/10.2139/ssrn.3542534

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

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
42
Abstract Views
249
PlumX Metrics