Mean-Variance Tradeoff of Bitcoin Inverse Futures

15 Pages Posted: 24 Mar 2020 Last revised: 10 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: April 23, 2020

Abstract

We focus on the risk analysis of Bitcoin inverse futures, with variance or volatility taken as the risk measure. We derive explicit representations for the expectation and variance of the returns on Bitcoin inverse futures and obtain their first-order approximations. The empirical studies show that Bitcoin inverse futures are more (resp. less) risky than standard futures when the market is in backwardation (resp. contango). We further find that Bitcoin inverse futures bear higher downside risk, as measured by semi-deviation, than standard futures.

Keywords: Bitcoin, Downside Risk, Futures, Volatility

JEL Classification: G11, G32

Suggested Citation

Deng, Jun and Pan, Huifeng and Zhang, Shuyu and Zou, Bin, Mean-Variance Tradeoff of Bitcoin Inverse Futures (April 23, 2020). Available at SSRN: https://ssrn.com/abstract=3544785 or http://dx.doi.org/10.2139/ssrn.3544785

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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