![]() ![]() You can help adding them by using this form. We have no bibliographic references for this item. It also allows you to accept potential citations to this item that we are uncertain about. This allows to link your profile to this item. If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. See general information about how to correct material in RePEc.įor technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact. When requesting a correction, please mention this item's handle: RePEc:chf:rpseri:rp1824. You can help correct errors and omissions. Suggested CitationĪll material on this site has been provided by the respective publishers and authors. This strategy could thus afford a cost of 2.27% at each rebalancing period and still outperform investing only in Bitcoin. The outperformance of the Efficient Portfolio over just investing in Bitcoin was 265%, accomplished over 117 rebalances from 08-Jul- 2013 to 2. It would have moved out of Bitcoin gradually since 2 to be completely out on 1, three days before the crash. Using our bubble model on Bitcoin from until 1 would have generated a CAGR of 140% with a maximum drawdown of 69% giving a Calmar Ratio of 2.03. ![]() We examine the optimal investment problem in the context of the bubble model by obtaining an analytic expression for maximizing the expected log of wealth (Kelly criterion) for the risky asset and a risk-free asset. We use the RE condition to estimate the real-time crash probability dynamically through an accelerating probability function depending on the increasing expected return. The RE condition implies that the excess risk premium of the risky asset exposed to crashes is an increasing function of the amplitude of the expected crash, which itself grows with the bubble mispricing: hence, the larger the bubble price, the larger its subsequent growth rate. Our bubble model is defined as a geometric Brownian motion combined with separate crash (and rally) discrete jump distributions associated with positive (and negative) bubbles. We present a dynamic Rational Expectations (RE) bubble model of prices with the intention to evaluate it on optimal investment strategies applied to Bitcoin. ![]()
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