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This paper aims to analyze the effect of Bitcoin on portfolio optimizationusing mean-variance, conditional value-at-risk (CVaR), and Markov regimeswitching approaches. I assessed each approach and developed the next based onthe prior approach's weaknesses until I ended with a high level of confidencein the final approach. Though the results of mean-variance and CVaR frameworksindicate that Bitcoin improves the diversification of a well-diversifiedinternational portfolio, they assume that assets' returns are developedlinearly and normally distributed. However, the Bitcoin return does not haveboth of these characteristics. Due to this, I developed a Markov regimeswitching approach to analyze the effect of Bitcoin on an internationalportfolio performance. The results show that there are two regimes based on theassets' returns: 1- bear state, where returns have low means and highvolatility, 2- bull state, where returns have high means and low volatility.

Evaluating the Impact of Bitcoin on International Asset Allocation using  Mean-Variance, Conditional Value-at-Risk (CVaR), and Markov Regime Switching  Approaches