A0310
Title: Pricing and hedging crypto options
Authors: Huei-Wen Teng - National Chiao Tung University (Taiwan) [presenting]
Wolfgang Karl Haerdle - Humboldt University at Berlin (Germany)
Abstract: Crypto options are financial derivatives where the underlying is related to a cryptocurrency. For example, the inverse Bitcoin option traded in Deribit exchange set up the strike price using the market value of a Bitcoin in USD but its payoff is converted in Bitcoin. Crypto options form a popular and inevitable asset class following the rapid and steady developments of cryptocurrencies. It has been documented that a stochastic volatility model with correlated jumps is dominating other GARCH-type or stochastic volatility models for cryptocurrencies under the physical measures. However, understanding the risk-neural pricing measure for crypto options remains scarce. Calibrating stochastic volatility models using option prices is challenging because there are no closed-form formulas of option prices. This issue becomes more prominent when jumps are involved in the model. We would like to compare the pricing and hedging performances of the stochastic volatility models with jumps for crypto options.