The Accuracy of Risk Measurement Models on Bitcoin Market during COVID-19 Pandemic

Danai Likitratcharoen, Nopadon Kronprasert, Karawan Wiwattanalamphong and Chakrin Pinmanee
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Danai Likitratcharoen: Faculty of Business Administration, Chiang Mai University, Chiang Mai 50200, Thailand
Nopadon Kronprasert: Excellence Center in Infrastructure Technology and Transportation Engineering (ExCITE), Chiang Mai University, Chiang Mai 50200, Thailand
Karawan Wiwattanalamphong: Faculty of Business Administration, Chiang Mai University, Chiang Mai 50200, Thailand
Chakrin Pinmanee: Faculty of Business Administration, Chiang Mai University, Chiang Mai 50200, Thailand

Risks, 2021, vol. 9, issue 12, 1-16

Abstract: Since late 2019, during one of the largest pandemics in history, COVID-19, global economic recession has continued. Therefore, investors seek an alternative investment that generates profits during this financially risky situation. Cryptocurrency, such as Bitcoin, has become a new currency tool for speculators and investors, and it is expected to be used in future exchanges. Therefore, this paper uses a Value at Risk (VaR) model to measure the risk of investment in Bitcoin. In this paper, we showed the results of the predicted daily loss of investment by using the historical simulation VaR model, the delta-normal VaR model, and the Monte Carlo simulation VaR model with the confidence levels of 99%, 95%, and 90%. This paper displayed backtesting methods to investigate the accuracy of VaR models, which consisted of the Kupiec’s POF and the Kupiec’s TUFF statistical testing results. Finally, Christoffersen’s independence test and Christoffersen’s interval forecasts evaluation showed effectiveness in the predictions for the robustness of VaR models for each confidence level.

Keywords: risk measures; value at risk; COVID-19; cryptocurrency; bitcoin; backtesting; Monte-Carlo simulation (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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