From a data perspective it is a market that provides a diversification benefit, having a low correlation to most other markets, and has a lot of volatility. Liquidity may be an issue and that is what I will be looking out for. What is the major reservation you have on Bitcoin as it enters regulated markets like the CME?
It will take a while for the liquidity to be obvious, and on a practical level I'd need about a year of price data to warm up my system. I'd also need to investigate things like how the settlement process works. The question then will be whether it's better to add BTC or vol futures (which I've taken out of my system due to margin concerns). I'd prefer vol futures, but if there are margin advantages of BTC then I wouldn't rule them out. However I'd be surprised if BTC is a margin friendly product, given the volatility! GAT
GAT: can I ask you a basic question about trend following CTA's. What are they profiting from? Are they looking for situations where someone is buying a commodity and they jump on the bandwagon? Or is it to harvest some kind of consistent risk premium? I read a lot about managing risk and targeting volatility but not a lot on idea generation (are you buying oil or selling it).
Whether you are buying or selling it depends on the moving average crossover of the recent price data. Target volatility tells you how much to buy, based upon how volatile you want your portfolio to be.
I view harvesting risk premia as trading something that isn't trading at its fair value because of the inherent risk averseness everyone has. Is that the same definition of risk premia you are using here?
What is the fair value you are trading against? Like in options it's implied vs realized. Or in risk arb its the spread between now and the final deal price.
I don't think you can or should or need to calculate the 'fair value' when it comes to harvesting risk premia. GAT