Implied volatility estimation of bitcoin options and the stylized facts of option pricing

The recently developed Bitcoin futures and options contracts in cryptocurrency derivatives exchanges mark the beginning of a new era in Bitcoin price risk hedging. The need for these tools dates back to the market crash of 1987, when investors needed better ways to protect their portfolios through option insurance. These tools provide greater flexibility to trade and hedge volatile swings in Bitcoin prices effectively. The violation of constant volatility and the log-normality assumption of the Black–Scholes option pricing model led to the discovery of the volatility smile, smirk, or skew in options markets. These stylized facts; that is, the volatility smile and implied volatilities implied by the option prices, are well documented in the option literature for almost all financial markets. These are expected to be true for Bitcoin options as well. The data sets for the study are based on short-dated Bitcoin options (14-day maturity) of two time periods traded on Deribit Bitcoin Futures and Options Exchange, a Netherlands-based cryptocurrency derivative exchange. The estimated results are compared with benchmark Black–Scholes implied volatility values for accuracy and efficiency analysis. This study has two aims: (1) to provide insights into the volatility smile in Bitcoin options and (2) to estimate the implied volatility of Bitcoin options through numerical approximation techniques, specifically the Newton Raphson and Bisection methods. The experimental results show that Bitcoin options belong to the commodity class of assets based on the presence of a volatility forward skew in Bitcoin option data. Moreover, the Newton Raphson and Bisection methods are effective in estimating the implied volatility of Bitcoin options. However, the Newton Raphson forecasting technique converges faster than does the Bisection method.

Hedging Long-Dated Oil Futures and Options Using Short-Dated Securities—Revisiting Metallgesellschaft

Since the collapse of the Metallgesellschaft AG due to hedging losses in 1993, energy practitioners have been concerned with the ability to hedge long-dated linear and non-linear oil liabilities with short-dated futures and options. This paper identifies a model-free non-parametric approach to extrapolating futures prices and implied volatilities. When we expand the analysis to implementing hedge portfolios for long-dated futures or option contracts over the time period 2007–2017, we utilize the useful benchmark of hedge ratios arising from Schwartz and Smith. With respect to the empirical consequences of hedging long-dated futures and options with their short-dated counterparts, we find that the long-term tracking errors are, on average, quite close to zero, but there is increasing risk entailed in attempting to do so, as the hedge-tracking errors for both futures and option contracts increase with time-to-maturity.

Shaping the Risk

The board game backgammon illustrates that we can control the effects of risk by understanding chances, controlling our exposure to risk, and attending to the preparation of our responses. If we understand the risks we face in a financial context, hedging strategies can allow us to shape the overall risk by offsetting some or all of it, but this comes at a price. Financial futures and options are some of the tools that allow financial risks to be shaped in creative ways. Where risks are poorly understood, though, these financial engineering approaches may not always be effective, and have in the past led to financial difficulties.

Important Aspects Related To Foreign Exchange Operations Of Commercial Banks

This article provides analytical, critical and econometric analysis of the factors influencing the off-balance sheet operations of commercial banks of the Republic of Uzbekistan. Factors influencing documentary letters of credit, currency forward transactions, bank guarantee-related transactions, currency spot, currency futures and options from off-balance sheet operations, which are highly profitable for commercial banks, were studied.

ORGANIZATIONAL PRINCIPLES OF TRANSACTIONS IN THE EXCHANGE MARKET

The article highlights the theoretical foundations of the exchange-traded transactions organization in the stock exchange market. It is noted that the economic essence of exchange-traded transactions includes three main differential features: the object of trade, method of execution and maturity of contracts. The theoretical concept of exchange-traded transactions by business entities in international stock exchange markets is highlighted. It has been found that exchange-traded transactions have evolved for a long time from concluding agreements with the supply of real assets (spot) to futures and options contracts. Taking into account the international experience of stock exchange trade, the organizational structure of the stock exchange market, optimal for the implementation in Ukraine is highlighted. It is proved that an effective mechanism for price risks managing and attracting financial resources is the use of the stock exchange market and its tools in the activities of business entities. The organizational mechanism of stock exchange transactions has been constantly transformed on the world stock exchange market from trading in immediate delivery agreements (spot) to futures and options. The priority organizational measures necessary for accelerating the development of the domestic stock exchange market of futures contracts for the main commodity and financial assets are given. Accelerating the development of the domestic stock exchange market at the international level requires qualitative and quantitative changes in the stock exchange environment. The priority organizational measures in this context should be the reset of the regulatory component, strengthening the role of the state regulator in the formation of the regulatory framework and control over the activities of participants, as well as deepening protection of the rights of all stock exchange participants. In addition, it is necessary to stimulate the beginning of consolidation processes in the domestic commodity and stock markets. This direction of improving the implementation of exchange-traded operations on the domestic exchange market will contribute to the universalization and improvement of technological support of stock exchange platforms. The last, but no less important, organizational measure is the creation of the necessary infrastructure for the implementation of futures exchange transactions in the domestic stock exchange market.