Bitcoin: jumps, convenience yields, and option prices

Jimmy E. Hilliard and Julie T. D. Ngo

Quantitative Finance, 2022, vol. 22, issue 11, 2079-2091

Abstract: We investigate Bitcoin pricing characteristics and find evidence of jumps and positive convenience yield. We develop a theoretical jump diffusion model for options on spots and use simulations to evaluate non-linear parameter estimates. Data from the Deribit exchange is used to compare the performance of the jump diffusion models with Practitioner Black–Scholes models. Using Diebold–Marino statistics and standard error metrics, we find that the jump diffusion models significantly outperform Practitioner Black–Scholes models. We conclude that Bitcoin behaves more like a commodity than a currency.

Date: 2022
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DOI: 10.1080/14697688.2022.2109989

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