On a Regime Switching Illiquid High Volatile Prediction Model for Cryptocurrencies

El-Khatib, Youssef and Hatemi-J, Abdulnasser (2022): On a Regime Switching Illiquid High Volatile Prediction Model for Cryptocurrencies.

Abstract

Cryptocurrencies are increasingly utilized by investors and financial institutions worldwide. The current paper proposes a prediction model for a cryptocurrency that encompasses three properties observed in the markets for cryptocurrencies—namely high volatility, illiquidity, and regime shifts. By using Ito calculus, we provide a solution for the suggested stochastic differential equation (SDE) along with a proof. Moreover, numerical simulations are performed and are compared to the real data, which seems to capture the dynamics of the price path of a cryptocurrency in the real markets.

• Item Type: MPRA Paper
• Language: English
• Keywords: Stochastic Modeling, cryptocurrencies, illiquid, high volatility, regime switching, CTMC.
• Subjects: G - Financial Economics > G1 - General Financial Markets; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; G - Financial Economics > G1 - General Financial Markets > G17 - Financial Forecasting and Simulation

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