Bitcoin Option Pricing Method And Empirical Analysis

In recent years,the unofficial digital currency system represented by Bitcoin has steadily increased in transaction volume.Bitcoin assets,as an emerging investment product,have attracted the attention of more and more investors.With the development of the Bitcoin market,due to its unique high volatility characteristics,the demand for its derivative products(such as option products)is also increasing.However,because Bitcoin is an emerging asset,there are still relatively few studies on Bitcoin,especially its derivatives,compared with mature financial assets.Special Bitcoin options usually take the form of reverse contracts,and their profit and loss calculations are different from traditional option contracts.At the same time,the underlying asset-Bitcoin is highly speculative,extremely volatile in price,and discontinuous.Therefore,the traditional BS formula cannot be directly used for option pricing.This paper conducts an empirical analysis on the random process of Bitcoin price first,and on this basis,derives and revises the Bitcoin option pricing model based on the traditional BS formula.After determining the pricing method of Bitcoin options,based on a variety of volatility models,the volatility of the underlying assets of Bitcoin options was predicted,and on this basis,an empirical analysis of Bitcoin option pricing prediction was completed.This article conducts an empirical analysis based on the main Bitcoin option contracts and asset prices on the Deribit platform from March 7,2017 to March5,2020.Empirical results show: First,geometric Brownian motion is more suitable to describe the random process of bitcoin prices.Second,based on the BS formula,a pricing formula suitable for Bitcoin options is derived.Third,the volatility prediction model is analyzed,and it is found that the volatility prediction effect obtained by the method of directly modeling the implied volatility(ARIMA,mean reversion)is better than the GARCH model,and the results are carried out on this basis.Option price forecasts are more consistent with actual prices.