Value-at-risk and expected shortfall in cryptocurrencies' portfolio: a vine copula-based approach

Risk management is an important and helpful process for investors, hedge funds, traders and market makers. One of its key points is the appropriate estimation of risk measures which can improve the investment decisions and trading strategies. The high volatility of cryptocurrencies turns them a real...

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Bibliographic Details
Published in:Applied economics 2020-05, Vol.52 (24), p.2580-2593
Main Authors: Trucíos, Carlos, Tiwari, Aviral K., Alqahtani, Faisal
Format: Article
Language:English
Subjects:
Cryptocurrency
Digital currencies
Economic analysis
Economic theory
GARCH
pair-copula
Risk management
risk measures
Trading
volatility
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Summary:Risk management is an important and helpful process for investors, hedge funds, traders and market makers. One of its key points is the appropriate estimation of risk measures which can improve the investment decisions and trading strategies. The high volatility of cryptocurrencies turns them a really risky investment and consequently, appropriate risk measures estimation is extremely necessary. In this article, we deal with the estimation of two widely used risk measures such as Value-at-Risk and Expected Shortfall in a cryptocurrency context. To face the presence of outliers and the correlation between cryptocurrencies, we propose a methodology based on vine copulas and robust volatility models. Our procedure is illustrated in a seven-dimensional equal-weight cryptocurrency portfolio and displays good performance.
ISSN:0003-6846
1466-4283
DOI:10.1080/00036846.2019.1693023