I had a little problem like this in school. This guy, lets just call him 'SS' had a bit of a reputation with people at our school - he had beaten up a few weaker and younger guys. however it used to really annoy him when people used to say to him "I bet you could not beat up Charlie" (we were in the same year) so he would always want to fight me.
I had a reputation of being a good laugh and a good martial artist (i only did karate at that time) he would always pass messages through people saying that he wants a fight blah, blah, etc... but i would not fight him....unless he went for me that is.
my dad (karate/jujutsu BB) gave me some really good advice when i told him about it - he said if he confronts you say "look SS, i do not want to fight you.....but if we do i promise i will not mess around"! and then just walk off even if he said anything in return - this will cast doubt in his mind even if he does not show it.
in other words it's your choice but you will come worse off.
So i never had to self premote myself like SS did or like your guy because other people did it for me - which is the best way. it has always been the way 'right or wrong' that if poeple know you do martial arts it adds an air of mystery to you.
so if i were you it's not a bad thing in your case to allow poeple to know what you do, tell friends and allow the word to get to him that you are a martial artist - don't say what style or your grade but just that you do MA's and then you can go on being a man of peace and just stay quiet and avoid fighting.
as it goes when i go back to the area i grew up in i often see people who were part of the 'cool crowd' and you should see them now!! over weight/unfit/no-life and grumpy - so the worm has turned! when i saw SS it was no different...i just smiled to myself.
my dad also said that a big/tall guy automatically gains respect with people.....a small guy has to earn it. (we are both about 5f 8/9.
just a final piece of advice - if i were you i would cross train in jujutsu and that's coming from someone who does Tae Kwon Do (ITF).