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Bitcoin spot and derivatives markets: Searching for completeness

Bitcoin spot and derivatives markets: Searching for completeness Cryptocurrencies have emerged in the last decade as a new asset class unlikely to disappear despite its extraordinary volatility. Futures contracts on Bitcoins were introduced in December 2017 by the Chicago Mercantile Exchange followed by options in January 2020. Our goal in this paper is threefold: (i) present the main features of cryptocurrency spot and derivative markets; (ii) argue that the custody recently granted by large financial institutions to their large customers for their bitcoins shows that Bitcoins are very similar to commodities, allowing the extension to bitcoins of the convenience yield introduced by Working (American Economic Review, vol. 39, 1949, pp. 1254–1262) in the Theory of Storage; (iii) use the prices of options traded on the Deribit Exchange to build the volatility smiles and skews observed at different dates of 2019 for short and long dated maturities and compare them to smiles/skews of equity options. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Risk and Decision Analysis iospress

Bitcoin spot and derivatives markets: Searching for completeness

Risk and Decision Analysis , Volume 8 (3-4): 13 – Oct 4, 2021

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Publisher
IOS Press
Copyright
Copyright © 2021 © 2021 – IOS Press. All rights reserved
ISSN
1569-7371
eISSN
1875-9173
DOI
10.3233/RDA-202065
Publisher site
See Article on Publisher Site

Abstract

Cryptocurrencies have emerged in the last decade as a new asset class unlikely to disappear despite its extraordinary volatility. Futures contracts on Bitcoins were introduced in December 2017 by the Chicago Mercantile Exchange followed by options in January 2020. Our goal in this paper is threefold: (i) present the main features of cryptocurrency spot and derivative markets; (ii) argue that the custody recently granted by large financial institutions to their large customers for their bitcoins shows that Bitcoins are very similar to commodities, allowing the extension to bitcoins of the convenience yield introduced by Working (American Economic Review, vol. 39, 1949, pp. 1254–1262) in the Theory of Storage; (iii) use the prices of options traded on the Deribit Exchange to build the volatility smiles and skews observed at different dates of 2019 for short and long dated maturities and compare them to smiles/skews of equity options.

Journal

Risk and Decision Analysisiospress

Published: Oct 4, 2021

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