Browsing by Author "Bosman, Lisa-Marie"

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    A comparison of value at risk & expected shortfall models in cryptocurrencies
    (Stellenbosch : Stellenbosch University, 2023-03) Bosman, Lisa-Marie; Perrang, Justin; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Statistics and Actuarial Science.
    ENGLISH SUMMARY: The key objective of this study is to examine the application of specific traditional market risk management measures on the cryptocurrency market and investigate the efficiency and accuracy thereof through the application of value at risk (VaR) and expected shortfall (ES) models. The further objective is to provide an extensive literature review of important topics relating to cryptocurrencies and the risk management thereof. Numerous studies and applications related to cryptocurrencies have already been conducted. This study clarifies certain aspects and factors regarding the cryptocurrency market, such as blockchains, cryptocurrency bubbles and the impending regulation of the asset class. As the volatile cryptocurrency market has become more prominent in the financial sector throughout the years, the modelling and management of market risk have become key areas related to the asset class. VaR and ES are well-known measures of market risk. These are implemented in this study on the daily return data for Bitcoin, Ethereum, Ripple and Dogecoin for the period 8 August 2015 — 31 August 2022. The historical simulation model, as well as independent and identically distributed (i.i.d.) models, assuming both normally and Student t distributed returns, are applied. The exponentially weighted moving average (EWMA) model provides an improvement upon the i.i.d. models. Following this, the asymmetric volatility of the data is taken into account with an adjusted EWMA model, the asymmetric exponentially weighted moving average (AEWMA). The final model applied is the filtered historical simulation (FHS), which combines the benefits of the historical simulation and AEWMA models using bootstrapping. The daily VaR and ES forecasts are extensively backtested to enable comparison among the models. The results produced differ among the different coins and for the different significant levels. However, it is clear that the asymmetric volatility of the data significantly impacts the results and must be accounted for in modelling. It can be concluded that traditional market risk management has an important place in the cryptocurrency market.