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

Author

Listed:
  • Mba Jules Clement

    (University of Johannesburg, Faculty of Science, Mathematics and Applied Mathematics, Cnr Kingsway Rd and University Rd, Johannesburg, Gauteng 2006, South Africa)

  • Mwambetania Mwambi Sutene

    (University of Johannesburg, School of Econonmics, Johannesburg, Gauteng, South Africa)

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.

Suggested Citation

  • Mba Jules Clement & Mwambetania Mwambi Sutene, 2022. "Crypto-assets portfolio selection and optimization: a COGARCH-Rvine approach," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 26(2), pages 173-190, April.
    • Handle: RePEc:bpj:sndecm:v:26:y:2022:i:2:p:173-190:n:6
    DOI: 10.1515/snde-2020-0072
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    Keywords

    COGARCH; differential evolution; Levy process; portfolio optimization; regular vine copula;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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