Hedging with automatic liquidation and leverage selection on bitcoin futures

【Author】 Alexander, Carol; Deng, Jun; Zou, Bin

【Source】EUROPEAN JOURNAL OF OPERATIONAL RESEARCH

【影响因子】6.363

【Abstract】Bitcoin derivatives positions are maintained with a self-selected margin, which is often too low to avoid automatic liquidation by the exchange, without notice, especially during periods of excessive volatility. In-deed, according to CryptoQuant, almost $80 billion of positions on centralised exchanges were liquidated during 2021, that is an average of over $200 million per day. So hedgers of bitcoin price risk should ac-count for the possibility of automatic liquidation when taking positions on bitcoin futures. We derive a semi-closed form for an optimal hedging strategy with dual objectives - to minimize both the variance of the hedged portfolio and the probability of liquidation due to insufficient collateral. The solution depends on the statistical characteristics of the spot and futures extreme returns, and other parameters that char-acterize the hedger by choice of leverage, loss aversion and collateral management. An empirical analysis based on minute-level data compares the performance of the major direct and inverse bitcoin hedging instruments traded on five major exchanges.(c) 2022 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license ( http://creativecommons.org/licenses/by-nc-nd/4.0/ )

【Keywords】Finance; Cryptocurrency; Leverage; Liquidation; Perpetual swap

【发表时间】2023 APR 1

【收录时间】2023-01-19

【文献类型】实验仿真

【主题类别】

区块链治理-市场治理-数字货币