Blockchain Analytics for Intraday Financial Risk Modeling

25 Pages Posted: 19 Jan 2019

See all articles by Matthew Francis Dixon

Matthew Francis Dixon

Illinois Institute of Technology

Cuneyt Akcora

University of Texas at Dallas - Erik Jonsson School of Engineering and Computer Science

Yulia Gel

Department of Mathematical Sciences

Murat Kantarcioglu

University of Texas at Dallas - Erik Jonsson School of Engineering and Computer Science

Date Written: January 9, 2019

Abstract

Blockchain offers the opportunity to use the transaction graph for financial governance, yet properties of this graph are understudied. One key question in this direction is the extent to which the transaction graph can serve as an early-warning indicator for large financial losses.

In this article, we demonstrate the impact of extreme transaction graph activity on the intraday volatility of the Bitcoin prices series. Specifically, we identify certain sub-graphs ('chainlets') that exhibit predictive influence on Bitcoin price and volatility and characterize the types of chainlets that signify extreme losses. Using bars ranging from 15 minutes up to a day, we fit GARCH models with and without the extreme chainlets and show that the former exhibit superior Value-at-Risk backtesting performance.

Keywords: Cryptocurrencies, Graph Analysis, Forecasting, Financial Risk, ICOs

JEL Classification: C58, C63, G18

Suggested Citation

Dixon, Matthew Francis and Akcora, Cuneyt and Gel, Yulia and Kantarcioglu, Murat, Blockchain Analytics for Intraday Financial Risk Modeling (January 9, 2019). Available at SSRN: https://ssrn.com/abstract=3313047 or http://dx.doi.org/10.2139/ssrn.3313047

Matthew Francis Dixon (Contact Author)

Illinois Institute of Technology ( email )

Department of Math
W 32nd St., E1 room 208, 10 S Wabash Ave, Chicago,
Chicago, IL 60616
United States

Cuneyt Akcora

University of Texas at Dallas - Erik Jonsson School of Engineering and Computer Science ( email )

Richardson, TX
United States

Yulia Gel

Department of Mathematical Sciences ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Murat Kantarcioglu

University of Texas at Dallas - Erik Jonsson School of Engineering and Computer Science ( email )

Richardson, TX
United States

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