Mean-Variance Tradeoff of Bitcoin Inverse Futures
15 Pages Posted: 24 Mar 2020 Last revised: 10 Jul 2020
Date Written: April 23, 2020
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: Suggested Citation