Research On Bitcoin's Market Risk Measurement

People say that the financial market is unpredictable,the root of which is that the risk of financial market is difficult to predict.Once the traditional financial assets' prices fluctuate sharply,such as stocks,bonds,interest rates or exchange rates,the price of their derivatives will be subject to risk of change.For a new type of virtual financial asset such as Bitcoin,its price change is very drastic and its market risk is even more unpredictable.Actually,people are not helpless for market risk.Va R(Value at Risk)and CVa R(Conditional Value at Risk)are two indicators which is specially proposed by the financial scholars to reflect market risk,hoping to measure the market risk and simulate the future price trends through the historical data.Among them,Va R refers to the value of assets under certain risks.However,Va R has a serious shortcoming,it is impossible to measure the loss value beyond the expected value.The tail event cannot be measured,and the risk is easy to underestimated.Therefore,in recent years,scholars have been more advocating CVa R,which is used to measure the loss of the thick tail ignored by Va R,and has been recognized by Basel Banking Committee.Therefore,this paper aims to measure the market risk of Bitcoin through a large amount of price data,especially at this stage of the first quarter of 2021,when the price of Bitcoin has been rising rapidly,to explore the trend of Bitcoin price in the future,and to choose a risk indicator which is more suitable for Bitcoin by comparing Va R and CVa R.First of all,the paper explores the reasons for the formation of market risk through the characteristics of Bitcoin itself,which are the speculative nature of Bitcoin and the influence of gold and stock on Bitcoin price.Secondly,through the statistical analysis of the price data of Bitcoin in the ten years from 2011 to 2021,it is found that there are some fluctuation rules of Bitcoin price,such as aggregation,autocorrelation and Arch effect.Thus,the GARCH models under different distributions are established.The model parameters are compared.According to the AIC minimum principle,the EGARCH model under GED distribution is selected.According to the principle of the highest goodness of fit,the TGARCH model under GED distribution is selected.The two methods of Va R and CVa R are used to measure the risk of Bitcoin,and then the failure probability test is performed.In this way,we can choose the risk indicator which is more suitable for measuring Bitcoin's market risks.Finally,the paper puts forward suggestions to deal with market risks in view of Bitcoin investors,Bitcoin trading platform and Bitcoin regulatory authorities,and also explores the way for China to develop the digital currency of central bank in the future.