Pricing Cryptocurrency Options
| Title: | Pricing Cryptocurrency Options |
|---|---|
| Authors: | Hou, Ai Jun, Wang, Weining, Chen, Cathy Y. H., Härdle, Wolfgang Karl |
| Source: | Journal of Financial Econometrics, Volume 18, Issue 2, Spring 2020, Pages 250 to 279 |
| Publication Year: | 2020 |
| Collection: | Quantitative Finance |
| Subject Terms: | Quantitative Finance - Statistical Finance |
| More Details: | Cryptocurrencies, especially Bitcoin (BTC), which comprise a new digital asset class, have drawn extraordinary worldwide attention. The characteristics of the cryptocurrency/BTC include a high level of speculation, extreme volatility and price discontinuity. We propose a pricing mechanism based on a stochastic volatility with a correlated jump (SVCJ) model and compare it to a flexible co-jump model by Bandi and Ren\`o (2016). The estimation results of both models confirm the impact of jumps and co-jumps on options obtained via simulation and an analysis of the implied volatility curve. We show that a sizeable proportion of price jumps are significantly and contemporaneously anti-correlated with jumps in volatility. Our study comprises pioneering research on pricing BTC options. We show how the proposed pricing mechanism underlines the importance of jumps in cryptocurrency markets. |
| Document Type: | Working Paper |
| DOI: | 10.1093/jjfinec/nbaa006 |
| Access URL: | http://arxiv.org/abs/2009.11007 |
| Accession Number: | edsarx.2009.11007 |
| Database: | arXiv |
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| RecordInfo | BibRecord: BibEntity: Identifiers: – Type: doi Value: 10.1093/jjfinec/nbaa006 Subjects: – SubjectFull: Quantitative Finance - Statistical Finance Type: general Titles: – TitleFull: Pricing Cryptocurrency Options Type: main BibRelationships: HasContributorRelationships: – PersonEntity: Name: NameFull: Hou, Ai Jun – PersonEntity: Name: NameFull: Wang, Weining – PersonEntity: Name: NameFull: Chen, Cathy Y. H. – PersonEntity: Name: NameFull: Härdle, Wolfgang Karl IsPartOfRelationships: – BibEntity: Dates: – D: 23 M: 09 Type: published Y: 2020 |
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