Back to Search Start Over

Cryptocurrency Portfolio Allocation under Credibilistic CVaR Criterion and Practical Constraints

Authors :
Hossein Ghanbari
Emran Mohammadi
Amir Mohammad Larni Fooeik
Ronald Ravinesh Kumar
Peter Josef Stauvermann
Mostafa Shabani
Source :
Risks, Vol 12, Iss 10, p 163 (2024)
Publication Year :
2024
Publisher :
MDPI AG, 2024.

Abstract

The cryptocurrency market offers attractive but risky investment opportunities, characterized by rapid growth, extreme volatility, and uncertainty. Traditional risk management models, which rely on probabilistic assumptions and historical data, often fail to capture the market’s unique dynamics and unpredictability. In response to these challenges, this paper introduces a novel portfolio optimization model tailored for the cryptocurrency market, leveraging a credibilistic CVaR framework. CVaR was chosen as the primary risk measure because it is a downside risk measure that focuses on extreme losses, making it particularly effective in managing the heightened risk of significant downturns in volatile markets like cryptocurrencies. The model employs credibility theory and trapezoidal fuzzy variables to more accurately capture the high levels of uncertainty and volatility that characterize digital assets. Unlike traditional probabilistic approaches, this model provides a more adaptive and precise risk management strategy. The proposed approach also incorporates practical constraints, including cardinality and floor and ceiling constraints, ensuring that the portfolio remains diversified, balanced, and aligned with real-world considerations such as transaction costs and regulatory requirements. Empirical analysis demonstrates the model’s effectiveness in constructing well-diversified portfolios that balance risk and return, offering significant advantages for investors in the rapidly evolving cryptocurrency market. This research contributes to the field of investment management by advancing the application of sophisticated portfolio optimization techniques to digital assets, providing a robust framework for managing risk in an increasingly complex financial landscape.

Details

Language :
English
ISSN :
22279091
Volume :
12
Issue :
10
Database :
Directory of Open Access Journals
Journal :
Risks
Publication Type :
Academic Journal
Accession number :
edsdoj.3dc12afec5e44216980e9eef0584eebe
Document Type :
article
Full Text :
https://doi.org/10.3390/risks12100163