Crypto Investing: How to Build a Better Portfolio

Cryptocurrencies, often seen as a means of exchange, don't really fit the bill. Instead, they're more like crypto assets, known for their wild price swings. If you're an investor looking to smooth out the bumps in your crypto asset portfolio, you can do so by creating an optimal mix using standard techniques that keep risk in check. The catch is, since these assets aren't backed by anything tangible, you can only hedge against risk by using other crypto assets. Surprisingly, these optimized crypto portfolios have been shown to outshine major stock indices like the S&P 500.

So, you might be wondering about crypto options. Right now, there aren't any options based on crypto assets. Why? Well, academics haven't quite figured out how to fairly price them yet. But don't worry, we've got a model for that. Our dynamic pricing model for crypto assets was thoroughly tested and is ready for the real world. By using the Esscher transform, we can value crypto options under the equivalent martingale measure. Since there are no traded crypto options right now, we couldn't compare our model's prices to market prices. But if crypto options do hit the market, our theoretical prices should be pretty close, after accounting for market quirks and design features.

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