Hedging Bitcoin Using Futures Contracts

Student: Tumanyan Mikael

Supervisor: Dmitriy Alexandrovich Kachalov

Faculty: International College of Economics and Finance

Educational Programme: Double degree programme in Economics of the NRU HSE and the University of London (Bachelor)

Final Grade: 8

Year of Graduation: 2019

This diploma examines the efficiency of CME Bitcoin futures contracts with respect to their hedging performance. Both constant and time-varying hedge ratios were considered using daily data. Bitcoin futures are trading on the Chicago Mercantile Exchange since the December 2017, this diploma represents the first complex research on the topic of cryptocurrency market hedging, addressing the question of the cointegration in the Bitcoin spot and futures distributions, implementing vector error-correction model and further estimation of multivariate GARCH models with both BEKK and CCC parametrization. Results indicate that time-varying hedge ratios are, on average, more successful in variance reduction than constant, also further analysis allowed to conclude, that constant conditional correlation model best fits the data and allows for the highest variance reduction. Overall, CME Bitcoin futures’ analysis leads to the conclusion, that they perform their risk minimization purpose, due to significant variance decrease in comparison to unhedged portfolios.

Full text (added June 13, 2019)

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