Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/230803
Authors: 
Kim, Alisa
Trimborn, Simon
Härdle, Wolfgang Karl
Year of Publication: 
2019
Series/Report no.: 
IRTG 1792 Discussion Paper No. 2019-027
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.
Subjects: 
index construction
volatility
crypto-currency
VCRIX
JEL: 
C51
C52
C53
G10
Document Type: 
Working Paper

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