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A Statistical Risk Assessment of Bitcoin and Its Extreme Tail Behaviour

In our recent paper “A Statistical Risk Assessment of Bitcoin and Its Extreme Tail Behaviour” (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2867339), we provide an extreme value analysis of the returns of Bitcoin. A particular focus is on the tail risk characteristics and we will provide an in-depth univariate extreme value analysis. Those properties will be compared to the traditional exchange rates of the G10 currencies versus the US dollar. For investors – especially institutional ones – an understanding of the risk characteristics is of utmost importance. So for bitcoin to become a mainstream investable asset class, studying these properties is necessary. Our findings show that the bitcoin return distribution not only exhibits higher volatility than traditional G10 currencies, but also stronger non-normal characteristics and heavier tails. This has implications for risk management, financial engineering (such as bitcoin derivatives) – both from an investor’s as well as from a regulator’s point of view. To our knowledge, this is the first detailed study looking at the extreme value behaviour of the cryptocurrency Bitcoin.

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