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On the Bitcoin price dynamics: an augmented Markov-Switching model with Lévy jumps

Author

Listed:
  • Julien Chevallier

    (IPAG Business School, UP8 - Université Paris 8 Vincennes-Saint-Denis)

  • Stéphane Goutte

    (LED - Laboratoire d'Economie Dionysien - UP8 - Université Paris 8 Vincennes-Saint-Denis, PSB - Paris School of Business - HESAM - HESAM Université - Communauté d'universités et d'établissements Hautes écoles Sorbonne Arts et métiers université)

  • Khaled Guesmi

    (IPAG Lab - IPAG Lab - IPAG Business School, École de gestion Telfer / Université d'Ottawa - University of Ottawa [Ottawa])

  • Samir Saadi

    (École de gestion Telfer / Université d'Ottawa - University of Ottawa [Ottawa])

Abstract

This study contributes to the existing literature on the empirical characteristics of virtual currency allowing for a dynamic transition between different economic regimes and considering various crashes and rallies over the business cycle, that is captured by jumps. We combine Markov-switching models with Levy jump-diffusion offer a new model that captures the different sub-period of crises over the business cycle, that is captured by jumps. This method also enables to test the relevance of dynamic measures of regime switching concerning the independent pure-jump process, which are not frequently used in the literature. Bitcoin offers something different than a traditional currency; there is potential value of having a network that helps as a secure repository for the common knowledge of all transactions. Besides, the value of Bitcoin fluctuates so wildly that it may be too risky to serve as a credible store of value.

Suggested Citation

  • Julien Chevallier & Stéphane Goutte & Khaled Guesmi & Samir Saadi, 2019. "On the Bitcoin price dynamics: an augmented Markov-Switching model with Lévy jumps," Working Papers halshs-02120636, HAL.
    • Handle: RePEc:hal:wpaper:halshs-02120636
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-02120636
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    References listed on IDEAS

    as
    1. Stéphane Goutte & Benteng Zou, 2012. "Continuous time regime switching model applied to foreign exchange rate," Working Papers hal-00643900, HAL.
    2. Ang, Andrew & Bekaert, Geert, 2002. "Regime Switches in Interest Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 163-182, April.
    3. Baele, Lieven, 2005. "Volatility Spillover Effects in European Equity Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(2), pages 373-401, June.
    4. Mitya Boyarchenko & Svetlana Boyarchenko, 2011. "Double Barrier Options In Regime-Switching Hyper-Exponential Jump-Diffusion Models," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 14(07), pages 1005-1043.
    5. Ballotta, Laura, 2005. "A Lévy process-based framework for the fair valuation of participating life insurance contracts," Insurance: Mathematics and Economics, Elsevier, vol. 37(2), pages 173-196, October.
    6. Katsiampa, Paraskevi, 2017. "Volatility estimation for Bitcoin: A comparison of GARCH models," Economics Letters, Elsevier, vol. 158(C), pages 3-6.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Bitcoin; Lévy process; Markov-switching model;
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