<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>Since Bitcoin introduction in 2008, the cryptocurrency market has grown into hundreds-of-billion-dollar market. The cryptocurrency market is well known as very volatile, mainly for the fact that the cryptocurrencies have not the price to fall back upon and that anybody can join the trading (no license or approval is required). Since empirical literature suggests that GARCH-type models dominate as VaR estimators the overall objective of this paper is to perform comprehensive volatility and VaR estimation for three major digital assets and conclude which method gives the best results in terms of risk management. The methods we used are parametric (GARCH and EWMA model), non-parametric (historical VaR) and Monte Carlo simulation (given by Geometric Brownian Motion). We conclude that the best method for value-at-risk estimation for cryptocurrencies is the Monte Carlo simulation due to the heavy diffusion (stochastic) process and robustness of the results.</p>
</abstract>

Since Bitcoin introduction in 2008, the cryptocurrency market has grown into hundreds-of-billion-dollar market. The cryptocurrency market is well known as very volatile, mainly for the fact that the cryptocurrencies have not the price to fall back upon and that anybody can join the trading (no license or approval is required). Since empirical literature suggests that GARCH-type models dominate as VaR estimators the overall objective of this paper is to perform comprehensive volatility and VaR estimation for three major digital assets and conclude which method gives the best results in terms of risk management. The methods we used are parametric (GARCH and EWMA model), non-parametric (historical VaR) and Monte Carlo simulation (given by Geometric Brownian Motion). We conclude that the best method for value-at-risk estimation for cryptocurrencies is the Monte Carlo simulation due to the heavy diffusion (stochastic) process and robustness of the results.

Volatility Modelling and VaR: The Case of Bitcoin, Ether and Ripple

DANUBE

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

{"article-title":"Volatility Modelling and VaR: The Case of Bitcoin, Ether and Ripple"}

Since Bitcoin introduction in 2008, the cryptocurrency market has grown into hundreds-of-billion-dollar market. The cryptocurrency market is well known as very...

Volatility Modelling and VaR: The Case of Bitcoin, Ether and Ripple

Published Online: Oct 17, 2020

Page range: 253 - 269

DOI: https://doi.org/10.2478/danb-2020-0015

Keywords
Cryptocurrency, Volatility, Value-at-risk, VaR, Geometric Brownian Motion, GARCH

© 2020 Jakub Ječmínek et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Volatility Modelling and VaR: The Case of Bitcoin, Ether and Ripple

Published Online: Oct 17, 2020

Page range: 253 - 269

DOI: https://doi.org/10.2478/danb-2020-0015

KeywordsCryptocurrency, Volatility, Value-at-risk, VaR, Geometric Brownian Motion, GARCH

© 2020 Jakub Ječmínek et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
Cryptocurrency, Volatility, Value-at-risk, VaR, Geometric Brownian Motion, GARCH