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Bitcoin: jumps, convenience yields, and option prices

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  • Jimmy E. Hilliard
  • Julie T. D. Ngo

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.

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  • Jimmy E. Hilliard & Julie T. D. Ngo, 2022. "Bitcoin: jumps, convenience yields, and option prices," Quantitative Finance, Taylor & Francis Journals, vol. 22(11), pages 2079-2091, November.
    • Handle: RePEc:taf:quantf:v:22:y:2022:i:11:p:2079-2091
    DOI: 10.1080/14697688.2022.2109989
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    3. Bibi, Samuele, 2023. "Money in the time of crypto," Research in International Business and Finance, Elsevier, vol. 65(C).
    4. Boyi Li & Weixuan Xia, 2024. "Crypto Inverse-Power Options and Fractional Stochastic Volatility," Papers 2403.16006, arXiv.org, revised Sep 2024.
    5. Arkorful, Gideon Bruce & Chen, Haiqiang & Gu, Ming & Liu, Xiaoqun, 2023. "What can we learn from the convenience yield of Bitcoin? Evidence from the COVID-19 crisis," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 141-153.
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