Pricing cryptocurrency options

Aijun Hou, Weining Wang, Cathy Chen, Wolfgang Härdle

Research output: Contribution to journalArticlepeer-review


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.
Original languageEnglish
Pages (from-to)250-279
Number of pages30
JournalJournal of Financial Econometrics
Issue number2
Publication statusPublished - 15 May 2020

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© The Author(s) 2020

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