Basically, Shannon's Demon proposes a way of harvesting volatility even when the underlying is driftless and/or one is agnostic regarding the underlying's drift. The simplest example starts with a portfolio's allocation is split between two assets which can be represented as . The CGCI introduces an adapted version of the Shannon’s Demon theory to control and benefit from the high volatility produced by cryptoassets. The Shannon’s Demon theory is a strategy where two uncorrelated assets -at least one of which is highly volatile (e.g. cryptoassets)- are periodically rebalanced to maintain an ideal weight allocation. The Bitcoin demon api blockchain is a public ledger that records bitcoin written record. It is implemented As a chain of blocks, from each one bar containing axerophthol hash of the previous block skyward to the genesis block of the chain. nucleotide meshing of communicating nodes running bitcoin software maintains the blockchain–
Shannons demon bitcoinIndex Strategies — CoinShares
Due to the persistent levels of correlation between cryptoassets, an equally weighted allocation model is employed within the cryptoasset basket. A group of 5 cryptoasset constituents allows for a certain degree of diversification in the cryptoasset market and ensures a strong enough liquidity pool to source the assets from.
Furthermore, the monthly rebalancing of the cryptoasset constituents ensures proper tracking of the overall market and allows for replicability. Gold was chosen due to its low volatility and correlation, high liquidity, and its ability to act as a hedge to traditional financial markets.
It is also represented as the diversifying asset to balance cryptoassets and will overall have a higher allocation in the index weighting. Together, the two baskets are weighted together using a volatility-weighting scheme which ensures that the higher risk asset will have less of an allocation in order to create a diversified exposure and limit the risks.
What is the CGCI? Index Methodology The index methodology maintains a basket of 5 equally-weighted cryptoassets weighted against gold.
Index Documents Index Methodology. Benchmark Statement. Index White Paper. Research: Stress Testing Diversified Portfolios. Key Statistics Date Wed, 23 Dec Annualised Return Annualised Standard Deviation 0. Annualised Sharpe 2. Annualised Sortino 4. Return Since Inception 1, Y-to-Y Return Constituents Weights Due to the persistent levels of correlation between cryptoassets, an equally weighted allocation model is employed within the cryptoasset basket.
Contact Us Want to get in touch? Whether it's called volatility pumping, rebalancing premium, or Shannon's Demon it would just be a form of replicating a short gamma option strategy eg.
Intuitively, you are systematically selling at higher levels and buying at lower levels. This was obtained with a path Monte Carlo simulation. There is a tradeoff between frequent small gains and less frequent large losses, reminiscent of shorting straddles. In the guise of generating positive gains from two losing strategies, this is known as Parrondo's paradox.
The examples that demonstrate the effect are typically contrived, exploiting stationarity and a priori knowledge of the parameters. You may find the following paper worthwhile. It addresses most of the above points and many more in a systematic way:. Abstract Volatility is usually considered as a synonym for risk. Mainstream financial theory states that higher portfolio volatility is translated into higher expected returns while diversification helps eliminate idiosyncratic risks.
This leaves us with an apparent anomaly as low-risk low-beta stocks over-perform high-risk high-beta stocks over the long term. Is this really an anomaly? What about high conviction investing? Should we dismiss stock-picking as a futile exercise even if such an approach is used by one of the most successful investors of our times? In this paper we answer these questions and propose a framework that encompasses various investment styles and portfolio construction methodologies.
Modern Portfolio Theory is a one period approach relating expected returns and volatilities as two independent variables estimated from ensemble averages. Contrary to previous studies based on maximising log returns, we find no contradictions with the results of modern portfolio theory. In addition, we provide insights on rebalancing bonus, showing how and when it is possible to add value from volatility in active portfolio management.
As fire can be either dangerous, if uncontrolled, or useful to run a mechanical engine if controlled, in the very same way it should be possible to put volatility to work in a controlled manner in order to produce growth. Sign up to join this community. The best answers are voted up and rise to the top. Intuitive Explanation for Shannon's Demon? Ask Question.
Asked 2 years, 10 months ago. Active 1 year, 11 months ago. Viewed 4k times. Good references are also appreciated. David Addison. David Addison David Addison 2, 8 8 silver badges 28 28 bronze badges. You might be interested in this question and the given answers there: quant. My initial searches for Shannon's Demon came up empty handed. There is obviously some overlap between that question and this one. Active Oldest Votes.