Stress Testing Diversified Portfolios: The Case of the CoinShares Gold and Cryptoassets Index

Aikaterini Koutsouri (), Michael Petch () and William J. Knottenbelt ()
Additional contact information
Aikaterini Koutsouri: Imperial College London
Michael Petch: CoinShares
William J. Knottenbelt: Imperial College London

A chapter in Mathematical Research for Blockchain Economy, 2020, pp 43-64 from Springer

Abstract: Abstract Stress testing involves the use of simulation to assess the resilience of investment portfolios to changes in market regimes and extreme events. The quality of stress testing is a function of the realism of the market models employed, as well as the strategy used to determine the set of simulated scenarios. In this paper, we consider both of these parameters in the context of diversified portfolios, with a focus on the emerging class of cryptoasset-containing portfolios. Our analysis begins with univariate modelling of individual risk factors using ARMA and GJR–GARCH processes. Extreme Value Theory is applied to the tails of the standardised residuals distributions in order to account for extreme outcomes accurately. Next, we consider a family of copulas to represent the dependence structure of the individual risk factors. Finally, we combine the former approaches to generate a number of plausibility-constrained scenarios of interest, and simulate them to obtain a risk profile. We apply our methodology to the CoinShares Gold and Cryptoassets Index, a monthly-rebalanced index which comprises two baskets of risk-weighted assets: one containing gold and one containing cryptoassets. We demonstrate a superior risk-return profile as compared to investments in a traditional market-cap-weighted cryptoasset index.

Keywords: Cryptoassets; Gold; Index; Risk modelling; Stress testing (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-030-53356-4_4

Ordering information: This item can be ordered from
http://www.springer.com/9783030533564

DOI: 10.1007/978-3-030-53356-4_4

Access Statistics for this chapter

More chapters in Springer Proceedings in Business and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().