A Novel Methodology to Calculate the Probability of Volatility Clusters in Financial Series: An Application to Cryptocurrency Markets
MetadataShow full item record
Author/sNikolova, Venelina; Trinidad Segovia, Juan Evangelista; Fernández Martínez, Manuel; Sánchez Granero, Miguel Ángel
One of the main characteristics of cryptocurrencies is the high volatility of their exchange rates. In a previous work, the authors found that a process with volatility clusters displays a volatility series with a high Hurst exponent. In this paper, we provide a novel methodology to calculate the probability of volatility clusters with a special emphasis on cryptocurrencies. With this aim, we calculate the Hurst exponent of a volatility series by means of the FD4 approach. An explicit criterion to computationally determine whether there exist volatility clusters of a fixed size is described. We found that the probabilities of volatility clusters of an index (S&P500) and a stock (Apple) showed a similar profile, whereas the probability of volatility clusters of a forex pair (Euro/USD) became quite lower. On the other hand, a similar profile appeared for Bitcoin/USD, Ethereum/USD, and Ripple/USD cryptocurrencies, with the probabilities of volatility clusters of all such cryptocurrencies ...
probability of volatility cluster