GARCH model for the volatility of cryptocurrencies

FINANCE

Virtual currencies (cryptocurrencies) have various fluctuations and changes over time like any currency. The present study is interested in investigating and analyzing the main conditions of productivity and variability in these currencies. Some of the main features of these cryptocurrencies are the high rate of fluctuation and variability, the uncertainty in the prices and a long memory in the variation. An estimated model of random variability with several variants with non-continuous jumps to an intermediate productivity was formulated. This formulated model can give us as an answer some non-common values within the discontinuity of the raised uncertainty. To achieve optimal results, 10 of the most important cryptocurrencies were analyzed (with daily observations for 2 years). The results indicate that in 2 time periods (2021 and early 2022) there was a lot of variability. This component of variability seems to be stimulated by the growth and change in the market and by the attractiveness of digital currencies for investors. In the first period of 2021, the jumps in the variation transition were of greater magnitude and frequency, all of which would cause some changes in the price and profitability of the currencies. This subordination to the long memory of digital currencies has a greater tendency to increase when it comes to stable formulations but with jumps or transitions in between. Currency prices are mostly non-stationary series that agglomerate sets of volatilities; These characteristics make them candidates to model said volatilities through heteroscedastic autoregressive models.

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