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Optimal Bitcoin trading with inverse futures

Author

Listed:
  • Jun Deng

    (University of International Business and Economics)

  • Huifeng Pan

    (University of International Business and Economics)

  • Shuyu Zhang

    (Beijing Technology and Business University)

  • Bin Zou

    (University of Connecticut)

Abstract

We consider an optimal trading problem for an investor who trades Bitcoin spot and Bitcoin inverse futures, plus a risk-free asset. The investor seeks an optimal strategy to maximize her expected utility of terminal wealth. We obtain explicit solutions to the investor’s optimal strategies under both exponential and power utility functions. Empirical studies confirm that optimal strategies perform well in terms of Sharpe ratio and Sortino ratio and beat the long-only strategy in Bitcoin spot.

Suggested Citation

  • Jun Deng & Huifeng Pan & Shuyu Zhang & Bin Zou, 2021. "Optimal Bitcoin trading with inverse futures," Annals of Operations Research, Springer, vol. 304(1), pages 139-163, September.
    • Handle: RePEc:spr:annopr:v:304:y:2021:i:1:d:10.1007_s10479-021-04125-w
    DOI: 10.1007/s10479-021-04125-w
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    References listed on IDEAS

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    Cited by:

    1. Boyi Li & Weixuan Xia, 2024. "Crypto Inverse-Power Options and Fractional Stochastic Volatility," Papers 2403.16006, arXiv.org.
    2. Alexander, Carol & Deng, Jun & Zou, Bin, 2023. "Hedging with automatic liquidation and leverage selection on bitcoin futures," European Journal of Operational Research, Elsevier, vol. 306(1), pages 478-493.

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