TY - JOUR T1 - Practical Applications of Modeling Price Dynamics, Optimal Portfolios, and Option Valuation for Cryptoassets JF - The Journal of Alternative Investments DO - 10.3905/jai.2021.pa457 SP - jai.2021.pa457 AU - Yuan Hu AU - Lindquist W. Brent AU - Frank J. Fabozzi Y1 - 2021/08/13 UR - https://pm-research.com/content/early/2022/02/28/jai.2021.pa457.abstract N2 - In Modeling Price Dynamics, Optimal Portfolios, and Option Valuation for Cryptoassets, from the Summer 2021 issue of The Journal of Alternative Investments, Yuan Hu and Brent Lindquist, both at Texas Tech University, and Frank Fabozzi, of EDHEC Business School, emphasize the need for the development of a cryptocurrency index and associated hedging and trading vehicles, all designed to be consistent with modern portfolio theory. In an example, they create smart-beta-like cryptoasset indexes and suggest tracking them with a tradable ETF, and they show how to value options based on such indexes. Essentially, the authors provide a unified framework for applying financial theory to this new investment class, which consists primarily of risky assets–despite the commonly used label of currencies. The main message is that risk analysis, portfolio optimization, and derivative pricing should all be done within the same model. ER -