Data-Driven and Neuro-Volatility Fuzzy Forecasts for Cryptocurrencies

【Author】 Singh, Japjeet; Bowala, Sulalitha; Thavaneswaran, Aerambamoorthy; Thulasiram, Ruppa; Mandal, Saumen

【Source】2022 IEEE INTERNATIONAL CONFERENCE ON FUZZY SYSTEMS (FUZZ-IEEE)

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【Abstract】The forecasting problems in Computational Finance involve modelling the vagueness and imprecision inherent to the financial markets. Fuzzy set theory has a unique ability to quantitatively and qualitatively model and analyze such problems. Volatility forecasting plays an important role in financial risk management and in option pricing. Recently, there has been a growing interest in data-driven volatility models and neurovolatility models for risk forecasting of stocks and index funds. However, even these state-of-the-art models do not take into account the fuzzy volatility in their risk forecasts. Cryptocurrencies are a novel financial asset class based on the Blockchain technology. Cryptocurrencies have gained popularity among retail investors as a financial asset with high risks and high returns. The extremely volatile nature of cryptocurrencies (compared to traditional assets) makes forecasting their volatility more challenging. A simple algorithmic trading approach, Simple Moving Average (SMA) crossover strategy, is used to calculate the Algo returns. This paper provides fuzzy forecasts of the volatility of Algo returns using the data-driven Exponentially Weighted Moving Average (DD-EWMA) and neuro models for six major cryptocurrencies. We also compute and compare fuzzy volatility forecasts of four major tech stocks and Chicago Board Options Exchange's (CBOE) volatility index (VIX) using DD-EWMA and neuro models. Our experimental results show that the data-driven models produce better forecasts for cryptocurrencies as compared to the neuro models, while for the regular stocks and indexes, no such definitive conclusion could be drawn.

【Keywords】Fuzzy intervals; Cryptocurrency; Volatility Forecasting; Data-driven volatility; Neuro-volatility; Sharpe ratio; Algo return; Simple Moving Average

【发表时间】2022

【收录时间】2023-06-08

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