A Mathematical Formulation of the Valuation of Ether and Ether Derivatives as a Function of Investor Sentiment and Price Jumps

Rebecca Abraham () and Hani El-Chaarani
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Rebecca Abraham: Huizenga College of Business-SBE, Nova Southeastern University, 3301 College Avenue, Fort Lauderdale, FL 33314, USA
Hani El-Chaarani: Department of Finance, College of Business, Tripoli Campus, Beirut Arab University, Riad El Solh, P.O. Box 11-50-20, Beirut 11072809, Lebanon

JRFM, 2022, vol. 15, issue 12, 1-20

Abstract: The purpose of this study was to create quantitative models to value ether, ether futures, and ether options based upon the ability of cryptocurrencies to transform existing intermediary-verified payments to non-intermediary-based currency transfers, the ability of ether as a late mover to displace bitcoin as the first mover, and the valuation of ether in the context of investor irrationality models. The risk-averse investor’s utility function is a combination of expectations of the performance of ether, expectations of cryptocurrencies’ transformative power, and expectations of ether superseding bitcoin. The moderate risk-taker’s utility function is an alt-Weibull distribution, along with a gamma distribution. Risk-takers have a utility function in the form of a Bessel function. Ether price functions consist of a Levy jump process. Ether futures are valued as the combination of current spot prices along with term prices. The value of spot prices is the product of a spot premium and a lognormal distribution of spot prices. The value of term prices is equal to the product of a term premium, and the Levy jump process of price fluctuations during the delivery period. For ether options, a less risky ether option portfolio offsets ether’s risk by a fixed-income trading strategy.

Keywords: ether valuation; generalized exponential distribution; ether futures; alt-Weibull distribution; ether options; Levy jump process (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2022
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