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Crypto-assets portfolio selection and optimization: a COGARCH-Rvine approach

Jules Clement Mba and Mwambetania Mwambi Sutene ()
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Mwambetania Mwambi Sutene: University of Johannesburg, School of Econonmics, Johannesburg, Gauteng, South Africa

Studies in Nonlinear Dynamics & Econometrics, 2022, vol. 26, issue 2, 173-190

Abstract: Blockchain is a new technology slowly integrating our economy with crytocurrencies such as Bitcoin and many more applications. Bitcoin and other version of it (known as Altcoins) are traded everyday at various cryptocurrency exchanges and have drawn the interest of many investors. These new type of assets are characterised by wild swings in prices and this can lead to great profit as well as large losses. To respond to these dynamics, crypto investors need adequate tools to guide them through their choice of optimal portfolio selection. This paper presents a portfolio selection based on COGARCH and regular vine copula which are able to capture features such as abrupt jumps in prices, heavy-tailed distribution and dependence structure respectively, with the optimal portfolio achieved through the stochastic heuristic algorithm differential evolution known for its global search solution ability. This method shows great performance as compared with other available models and can achieve up to 50% of total returns in some periods of optimization.

Keywords: COGARCH; differential evolution; Levy process; portfolio optimization; regular vine copula; C02; G11; G17 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1515/snde-2020-0072

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