Year: 2026
Type: article
Abstract: Extreme movements in financial time series pose challenges for risk management and forecasting, particularly when their timing is irregular and difficult to anticipate. This study aims to develop a probabilistic framework for detecting and predicting such events using daily Bitcoin returns as a case study. We first identify extreme positive and negative return events using the Isolation Forest algorithm and estimate their empirical recurrence patterns using a dynamic frequency table to derive baseline parametric probabilities. A 7-day Hawkes excitation kernel is then applied to capture short-run self-exciting dynamics, and both components are integrated using logistic regression to produce real-time probability forecasts. The results show that positive events occur more frequently than negative ones and that prediction accuracy improves over time: Brier scores, which measure the accuracy of probabilistic predictions, decrease as additional event data accumulate, and log loss values exhibit a consistent downward trend. Overall, by combining anomaly detection, empirical inter-arrival estimation, and excitation dynamics into a unified structure, the proposed framework offers a transparent and adaptable tool for forecasting extreme events in the financial market.
Source: FinTech
Institution: University of Macedonia
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: gold
Estimated APC paid: $1,207
OpenAlex ID: W7127128309