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On a Regime Switching Illiquid High Volatile Prediction Model for Cryptocurrencies

Author

Listed:
  • El-Khatib, Youssef
  • Hatemi-J, Abdulnasser

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.

Suggested Citation

  • El-Khatib, Youssef & Hatemi-J, Abdulnasser, 2022. "On a Regime Switching Illiquid High Volatile Prediction Model for Cryptocurrencies," MPRA Paper 114556, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:114556
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    References listed on IDEAS

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    More about this item

    Keywords

    Stochastic Modeling; cryptocurrencies; illiquid; high volatility; regime switching; CTMC.;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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