The Application of Monte Carlo Simulation to Assess the Value at Risk in Cryptocurrency

Abstract

This study aims to calculate the Value at Risk (VaR) in the cryptocurrency assets portfolio using the Monte Carlo simulation method. Analysts mostly use value at risk to measure the potential loss from many financial assets. This study analyzed four cryptocurrencies, Bitcoin (BTC), Ethereum (ETH), BNB (BNB), and Solana (SOL), from March 1, 2020 to March 31, 2024. The analysis results provide an overview of the expected performance, standard deviation, VaR, and Monte Carlo simulation results. According to the VaR analysis, SOL is the most risky asset, while Bitcoin is the least risky asset Investors should consider VaR before investing in any asset. Investors should also consider this information and their risk profile before making an investment decision.