Stress Testing Diversified Portfolios: The Case of the CoinShares Gold and Cryptoassets Index
File(s)
Accepted version
Author(s)
Koutsouri, Aikaterini
Knottenbelt, William J
Type
Conference Paper
Abstract
Stress testing involves the use of simulation to assess the resilience of investment portfolios to changes in market regimes and extreme events. The quality of stress testing is a function of the realism of the market models employed, as well as the strategy used to determine the set of simulated scenarios. In this paper, we consider both of these parameters in the context of diversified portfolios, with a focus on the emerging class of cryptoasset-containing portfolios. Our analysis begins with univariate modelling of individual risk factors using ARMA and GJR--GARCH processes. Extreme Value Theory is applied to the tails of the standardised residuals distributions in order to account for extreme outcomes accurately. Next, we consider a family of copulas to represent the dependence structure of the individual risk factors. Finally, we combine the former approaches to generate a number of plausibility-constrained scenarios of interest, and simulate them to obtain a risk profile. We apply our methodology to the CoinShares Gold and Cryptoassets Index, a monthly-rebalanced index which comprises two baskets of risk-weighted assets: one containing gold and one containing cryptoassets. We demonstrate a superior risk-return profile as compared to investments in a traditional market-cap-weighted cryptoasset index.
Date Issued
2020-10-02
Date Acceptance
2020-03-10
Citation
Springer Proceedings in Business and Economics, 2020
ISBN
978-3-030-53355-7
Publisher
Springer Verlag
Journal / Book Title
Springer Proceedings in Business and Economics
Copyright Statement
© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2020. The final publication is available at Springer via https://link.springer.com/chapter/10.1007%2F978-3-030-53356-4_4
Sponsor
CoinShares (Jersey) Limited
Grant Number
PO 4550183036
Source
2nd International Conference on Mathematical Research for Blockchain Economy
Publication Status
Published online
Start Date
2020-08-24
Coverage Spatial
Online
Date Publish Online
2020-10-02