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Advanced model calibration on bitcoin options

Dilip B. Madan (), Sofie Reyners () and Wim Schoutens ()
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Dilip B. Madan: University of Maryland
Sofie Reyners: University of Leuven
Wim Schoutens: University of Leuven

Digital Finance, 2019, vol. 1, issue 1, 117-137

Abstract: Abstract In this paper, we investigate the dynamics of the bitcoin (BTC) price through the vanilla options available on the market. We calibrate a series of Markov models on the option surface. In particular, we consider the Black–Scholes model, Laplace model, five variance gamma-related models and the Heston model. We examine their pricing performance and the optimal risk-neutral model parameters over a period of 2 months. We conclude with a study of the implied liquidity of BTC call options, based on conic finance theory.

Keywords: Cryptocurrency; Modelling; Bitcoin; Calibration (search for similar items in EconPapers)
JEL-codes: C52 C60 G10 (search for similar items in EconPapers)
Date: 2019
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