Crypto-assets portfolio optimization under the omega measure

Javier Gutiérrez Castro, Edison Américo Huarsaya Tito, Luiz Eduardo Teixeira Brandão and Leonardo Lima Gomes

The Engineering Economist, 2020, vol. 65, issue 2, 114-134

Abstract: Crypto-currencies, or crypto-assets, represent a new class of investment assets. The traditional portfolio analysis approach of Markowitz is not appropriate for use with portfolios containing crypto-assets, as the model requires that the investor have a quadratic utility function or that the returns be normally distributed, which isn’t the case for crypto-assets. We develop a portfolio optimization model based on the Omega measure which is more comprehensive than the Markowitz model, and apply this to four crypto-asset investment portfolios by means of a numerical application. The results indicate that these portfolios should favor traditional market assets over crypto-assets. In the case of portfolios formed only by crypto-assets, there is no clear preference in favor of any crypto-asset in particular.

Date: 2020
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DOI: 10.1080/0013791X.2019.1668098

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