COINS AS A SAFE HAVEN CURRENCY

Back to Page Authors: Asma Maghrebi, Fathi Abid

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Keywords: cryptocurrency, stochastic modeling, optimal control, Lévy process

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Abstract: In this paper we consider a market-based economy composed of two asset classes where the cryptocurrency follows a Jump-diffusion process and Gold prices follow an Ornstein-Uhlenbek process in order to characterize the stochastic nature of the market. The stochastic optimal control approach combined with the strategic asset allocation and the inter-temporal utility theory are used through the derivation of a Hamilton-Jacobi-Bellman (HJB) equation to determine an explicit solution of the optimal allocation problem for investors with CRRA utility function. We consider a Gamma Levy process to determine numerically by using the secant method the optimal percentage invested in the two asset classes at each time over the holding period, for investors who are both risk-averse and less risk-averse. Our results show that it is possible for an investor to substitute Gold by coins (BTC, LTC, DASH) in an investment portfolio perspective. Although Gold is supposed to be the traditional safe-haven asset, digital currency seems to emerge as a new form of safe haven value in a risky environment.

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