A Stochastic Model for Cryptocurrencies in Illiquid Markets with Extreme Conditions and Structural Changes

Research output: Chapter in Book/Report/Conference proceedingChapter

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.

Original languageEnglish
Title of host publicationStudies in Systems, Decision and Control
PublisherSpringer Science and Business Media Deutschland GmbH
Pages479-488
Number of pages10
DOIs
Publication statusPublished - 2024

Publication series

NameStudies in Systems, Decision and Control
Volume487
ISSN (Print)2198-4182
ISSN (Electronic)2198-4190

Keywords

  • CTMC
  • Cryptocurrencies
  • High volatility
  • Illiquid
  • Regime switching
  • Stochastic modeling

ASJC Scopus subject areas

  • Computer Science (miscellaneous)
  • Control and Systems Engineering
  • Automotive Engineering
  • Social Sciences (miscellaneous)
  • Economics, Econometrics and Finance (miscellaneous)
  • Control and Optimization
  • Decision Sciences (miscellaneous)

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