Since loans become liquidatable only when they reach the liquidation threshold (e.g. 80% LTV), any calibration of Liquidation LTV needs to account for the token volatility of the collateral and debt assets.
Token volatility risk on K-Lend is determined using Parkinson’s Volatility measure, as it takes into account intra-period volatility (not just close-to-close differences). This is well suited to cryptocurrencies as there are no gaps between periods in crypto markets.
Parkinson's Volatility measure* is calculated by taking the square root of the average of the squared natural log of the ratio between the highest and lowest hourly prices across hourly periods.
The abrupt onset of extreme volatility can introduce an array of risks that may require rapid adjustments to various protocol parameters. This will be monitored by the Risk Council, and action taken if necessary.
* Parkinson, Michael. "The extreme value method for estimating the variance of the rate of return." Journal of business (1980): 61-65.
