Real-time VaR Calculations for Crypto Derivatives in kdb+/q

ArXiv ID: 2309.06393 “View on arXiv”

Authors: Unknown

Abstract

Cryptocurrency market is known for exhibiting significantly higher volatility than traditional asset classes. Efficient and adequate risk calculation is vital for managing risk exposures in such market environments where extreme price fluctuations occur in short timeframes. The objective of this thesis is to build a real-time computation workflow that provides VaR estimates for non-linear portfolios of cryptocurrency derivatives. Many researchers have examined the predictive capabilities of time-series models within the context of cryptocurrencies. In this work, we applied three commonly used models - EMWA, GARCH and HAR - to capture and forecast volatility dynamics, in conjunction with delta-gamma-theta approach and Cornish-Fisher expansion to crypto derivatives, examining their performance from the perspectives of calculation efficiency and accuracy. We present a calculation workflow which harnesses the information embedded in high-frequency market data and the computation simplicity inherent in analytical estimation procedures. This workflow yields reasonably robust VaR estimates with calculation latencies on the order of milliseconds.

Keywords: cryptocurrency, Value at Risk (VaR), GARCH, high-frequency data, risk management

Complexity vs Empirical Score

  • Math Complexity: 6.0/10
  • Empirical Rigor: 7.5/10
  • Quadrant: Holy Grail
  • Why: The paper uses advanced volatility models (GARCH, HAR) and expansions (Cornish-Fisher) but grounds them in a pragmatic, implementation-focused workflow; the significant empirical rigor comes from the explicit kdb+/q implementation, discussion of latency (14.2ms), and benchmarking against real crypto market data.
  flowchart TD
    A["Research Goal:<br>Real-time VaR for<br>Non-linear Crypto Derivatives"] --> B["Data Input:<br>High-Frequency<br>Crypto Market Data"]
    B --> C["Methodology:<br>Volatility Models<br>EWMA, GARCH, HAR"]
    C --> D["Computational Process:<br>Delta-Gamma-Theta<br>plus Cornish-Fisher Expansion"]
    D --> E["Outcomes:<br>Robust VaR Estimates<br>in Milliseconds"]