Abstract
The perpetual inverse futures contract is a recent and most popularly traded cryptocurrency derivative over crypto derivatives exchanges. Exchanges implement a liquidation mechanism that terminates positions which no longer satisfy maintenance requirements. In this study, we use regression, stochastic calculus, and simulation methods to provide a quantitative description of the wealth/return process for holding an XBTUSD contract on BitMEX, examine the funding rate and index price properties, and relate liquidation to leverage as a stopping time problem. The results will help investors understand liquidation to optimize their trading strategy and researchers in studying the design of crypto derivatives.
Erratum
The author wishes to acknowledge and cite the unpublished lecture notes of Professor Dmitry Kamarov, specifically on manuscript pages 17 and 21 under "Procedures." (Full citation: Kramkov, D. (2020). Continuous-Time Finance Course Lecture Notes at Carnegie Mellon University.)
Recommended Citation
Wu, Yue
(2020)
"A Quantitative Analysis on BitMEX Perpetual Inverse Futures XBTUSD Contract,"
Undergraduate Economic Review: Vol. 17:
Iss.
1, Article 12.
Available at:
https://digitalcommons.iwu.edu/uer/vol17/iss1/12