Mean-Variance Tradeoff of Bitcoin Inverse Futures
Accepted by Blockchain https://elspublishing.com/journals/blockchain/home/
15 Pages Posted: 24 Mar 2020 Last revised: 10 Jul 2020
Date Written: June 13, 2024
Abstract
Bitcoin inverse futures are dominant derivative contracts traded in the cryptocurrency market. We aim to understand the mean-variance tradeoff of such contracts through quantitative studies. To this purpose, we derive explicit representations for the expectation and variance of the returns on Bitcoin inverse futures and obtain their first-order approximations. The empirical findings 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: G32, G11
JEL Classification: G11, G32
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