VCRIX - a volatility index for crypto-currencies

Alisa Kim, Simon Trimborn () and Wolfgang Härdle

No 2019-027, IRTG 1792 Discussion Papers from Humboldt University of Berlin, International Research Training Group 1792 "High Dimensional Nonstationary Time Series"

Abstract: Public interest, explosive returns, and diversification opportunities gave stimulus to the adoption of traditional financial tools to crypto-currencies. While the CRIX index offered the first scientifically-backed proxy to the crypto- market (analogous to S&P 500), the introduction of Bitcoin futures by Cboe became the milestone in the creation of the derivatives market for crypto- currencies. Following the intuition of the "fear index" VIX for the American stock market, the VCRIX volatility index was created to capture the investor expectations about the crypto-currency ecosystem. VCRIX is built based on CRIX and offers a forecast for the mean annualized volatility of the next 30 days, re-estimated daily. The model was back-tested for its forecasting power, resulting in low MSE performance and further examined by the simulation of VIX (resulting in a correlation of 78% between the actual VIX and VIX estimated with the VCRIX model). VCRIX provides forecasting functionality and serves as a proxy for the investors’ expectations in the absence of the de- veloped derivatives market. These features provide enhanced decision making capacities for market monitoring, trading strategies, and potentially option pricing.

Keywords: index construction; volatility; crypto-currency; VCRIX (search for similar items in EconPapers)
JEL-codes: C51 C52 C53 G10 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Journal Article: VCRIX — A volatility index for crypto-currencies (2021)
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