Imperial College London
Alternate

Walter Distaso

Business School

Professor of Financial Econometrics
 
 
 
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Contact

 

+44 (0)20 7594 3293w.distaso Website

 
 
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Location

 

3.0253 Prince's GateSouth Kensington Campus

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Summary

 

Publications

Citation

BibTex format

@inproceedings{Koutsouri:2020:10.1007/978-3-030-37110-4_15,
author = {Koutsouri, A and Poli, F and Alfieri, E and Petch, M and Distaso, W and Knottenbelt, W},
doi = {10.1007/978-3-030-37110-4_15},
pages = {217--232},
publisher = {Springer Verlag},
title = {Balancing Cryptoassets and Gold: A Weighted-Risk-Contribution Index for the Alternative Asset Space},
url = {http://dx.doi.org/10.1007/978-3-030-37110-4_15},
year = {2020}
}
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RIS format (EndNote, RefMan)

TY  - CPAPER
AB  - Bitcoin is foremost amongst the emerging asset class knownas  cryptoassets.  Two  noteworthy  characteristics  of  the  returns  of  non-stablecoin cryptoassets are their high volatility, which brings with it ahigh level of risk, and their high intraclass correlation, which limits thebenefits that can be had by diversifying across multiple cryptoassets. Yetcryptoassets exhibit no correlation with gold, a highly-liquid yet scarceasset which has proved to function as a safe haven during crises affectingtraditional financial systems. As exemplified by Shannon’s Demon, a lackof correlation between assets opens the door to principled risk controlthrough so-called volatility harvesting involving periodic rebalancing.In this paper we propose an index which combines a basket of five cryp-toassets with an investment in gold in a way that aims to improve therisk profile of the resulting portfolio while preserving its independencefrom  mainstream  financial  asset  classes  such  as  stocks,  bonds  and  fiatcurrencies. We generalise the theory of Equal Risk Contribution to allowfor weighting according to a desired level of contribution to volatility. Wefind a crypto–gold weighting based on Weighted Risk Contribution to behistorically more effective in terms of Sharpe Ratio than several alterna-tive asset allocation strategies including Shannon’s Demon. Within thecrypto-basket, whose constituents are selected and rebalanced monthly,we find an Equal Weighting scheme to be more effective in terms of thesame metric than a market capitalisation weighting.
AU  - Koutsouri,A
AU  - Poli,F
AU  - Alfieri,E
AU  - Petch,M
AU  - Distaso,W
AU  - Knottenbelt,W
DO  - 10.1007/978-3-030-37110-4_15
EP  - 232
PB  - Springer Verlag
PY  - 2020///
SN  - 0302-9743
SP  - 217
TI  - Balancing Cryptoassets and Gold: A Weighted-Risk-Contribution Index for the Alternative Asset Space
UR  - http://dx.doi.org/10.1007/978-3-030-37110-4_15
UR  - http://hdl.handle.net/10044/1/69962
ER  -
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