Hou, Aijun, Wang, Weining, Chen, Cathy et al. (1 more author) (2020) Pricing cryptocurrency options. Journal of Financial Econometrics. pp. 250-279. ISSN 1479-8409
Abstract
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 \cite{bandi2016price}. 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.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © The Author(s) 2020 |
Dates: |
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Institution: | The University of York |
Academic Units: | The University of York > Faculty of Social Sciences (York) > Economics and Related Studies (York) |
Depositing User: | Pure (York) |
Date Deposited: | 09 Mar 2020 12:00 |
Last Modified: | 21 Jan 2025 17:45 |
Published Version: | https://doi.org/10.1093/jjfinec/nbaa006 |
Status: | Published |
Refereed: | Yes |
Identification Number: | 10.1093/jjfinec/nbaa006 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:158217 |