Hedging cryptocurrency options
The result's identifiers
Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216208%3A11320%2F23%3A10489888" target="_blank" >RIV/00216208:11320/23:10489888 - isvavai.cz</a>
Result on the web
<a href="https://verso.is.cuni.cz/pub/verso.fpl?fname=obd_publikace_handle&handle=cFZtQX~s5n" target="_blank" >https://verso.is.cuni.cz/pub/verso.fpl?fname=obd_publikace_handle&handle=cFZtQX~s5n</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.1007/s11147-023-09194-6" target="_blank" >10.1007/s11147-023-09194-6</a>
Alternative languages
Result language
angličtina
Original language name
Hedging cryptocurrency options
Original language description
The cryptocurrency market is volatile, non-stationary and non-continuous. Together with liquid derivatives markets, this poses a unique opportunity to study risk management, especially the hedging of options, in a turbulent market. We study the hedge behaviour and effectiveness for the class of affine jump diffusion models and infinite activity Levy processes. First, market data is calibrated to stochastic volatility inspired-implied volatility surfaces to price options. To cover a wide range of market dynamics, we generate Monte Carlo price paths using an stochastic volatility with correlated jumps model, a close-to-actual-market GARCH-filtered kernel density estimation as well as a historical backtest. In all three settings, options are dynamically hedged with Delta, Delta-Gamma, Delta-Vega and Minimum Variance strategies. Including a wide range of market models allows to understand the trade-off in the hedge performance between complete, but overly parsimonious models, and more complex, but incomplete models. The calibration results reveal a strong indication for stochastic volatility, low jump frequency and evidence of infinite activity. Short-dated options are less sensitive to volatility or Gamma hedges. For longer-dated options, tail risk is consistently reduced by multiple-instrument hedges, in particular by employing complete market models with stochastic volatility.
Czech name
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Czech description
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Classification
Type
J<sub>imp</sub> - Article in a specialist periodical, which is included in the Web of Science database
CEP classification
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OECD FORD branch
50201 - Economic Theory
Result continuities
Project
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Continuities
I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace
Others
Publication year
2023
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů
Data specific for result type
Name of the periodical
Review of Derivatives Research
ISSN
1380-6645
e-ISSN
1573-7144
Volume of the periodical
26
Issue of the periodical within the volume
1
Country of publishing house
NL - THE KINGDOM OF THE NETHERLANDS
Number of pages
43
Pages from-to
91-133
UT code for WoS article
000931750300001
EID of the result in the Scopus database
2-s2.0-85147761807