Applied Economics

ISSN: (Print) (Online) Journal homepage: https://www.tandfonline.com/loi/raec20

The Bitcoin options market: A first look at pricing

and risk

Akanksha Jalan, Roman Matkovskyy & Saqib Aziz

To cite this article: Akanksha Jalan, Roman Matkovskyy & Saqib Aziz (2021) The Bitcoin
options market: A first look at pricing and risk, Applied Economics, 53:17, 2026-2041, DOI:
10.1080/00036846.2020.1854671

To link to this article: https://doi.org/10.1080/00036846.2020.1854671

Published online: 20 Dec 2020.

Submit your article to this journal

Article views: 272

View related articles

View Crossmark data

Full Terms & Conditions of access and use can be found at

https://www.tandfonline.com/action/journalInformation?journalCode=raec20
APPLIED ECONOMICS
2021, VOL. 53, NO. 17, 2026–2041
https://doi.org/10.1080/00036846.2020.1854671

The Bitcoin options market: A first look at pricing and risk

Akanksha Jalan, Roman Matkovskyy and Saqib Aziz
Department of Finance and Accounting, Rennes School of Business, Rennes, France

ABSTRACT KEYWORDS
This paper offers the first-ever look at Bitcoin options by investigating the wedge between Bitcoin; cryptocurrency;
optimum Bitcoin option prices based on classical option valuation models (Black-Scholes-Merton European options; option
and the Heston-Nandi GARCH (1,1)) and actual premiums at which these options are trading. For pricing
this purpose, we use near-the-money call and put options traded on Deribit platform as on
27.01.2020, with the maturities ranging from January 31 to 25 September 2020. In addition, we
analyse the risk inherent in Bitcoin options by calculating their Greeks and comparing them to
those of traditional commodity options. Pricing results suggest slight overpricing and underpricing
for Bitcoin call options with the strike $8,000 maturing on 30.01.2020 and 28.02.2020, respectively.
We also find that the Bitcoin options provide much stable deltas over time compared to the other
commodity options. This result implies higher insulation from undue price rises with the passage of
time for investors in Bitcoin options. Our results are useful to regulators, investors and market
managers in better understanding the nuances of the Bitcoin options market in addition to making
more informed investment choices.

I. Introduction
Bitcoin (Nakamoto 2008), the first digital currency to
operate through a peer-to-peer network without reli­
ance on a central authority, has attracted attention
from the media, governments, regulators and inves­
tors alike, owing to its innovative features and huge
price appreciation. This price appreciation, however,
has been accompanied with a very high volatility and
uncertainty surrounding the future price behaviour of
this popular cryptocurrency. The unique characteris­
tics of Bitcoin have resulted in an ongoing academic
debate about its true nature – a currency, the ‘virtual
gold’, a hedge, a diversifier or a safe haven (see, for
instance, Yermack 2015; Dyhrberg 2016; Bouri et al.
2017; Urquhart and Zhang 2019; among others).
The introduction of Bitcoin futures in early
December 2017 marked one of the most crucial land­
marks in the development of derivatives in the cryp­
tocurrency markets. With the Bitcoin futures trading
on the Chicago Board Options Exchange (CBOE)
and the Chicago Mercantile Exchange (CME), not
only could investors now speculate on falling prices,
Bitcoin traders, for the first time, could easily hedge
their spot positions. Generally speaking, the launch of
Bitcoin futures was interpreted as the starting point
towards higher interconnectedness (Matkovskyy and
Jalan 2019) and higher integration (Kochling, Muller,
and Posch 2019) of cryptocurrencies with the ‘tradi­
tional’ financial system.
Another critical development in the cryptocur­
rency derivative market came with the launch of
options in Bitcoin and Ethereum that attracted atten­
tion mainly from professional traders. While LedgerX
became the first U.S. exchange to start trading in
Bitcoin options in late-2017, the CME Group Inc.,
one of the first U.S. regulated exchanges, also
launched options in Bitcoin futures (BTC) starting
13 January 2020. This move confirmed the growing
open interest in cryptocurrency options. As of today,
there are five main platforms that trade in European-
style Bitcoin options – Deribit, Quedex, LedgerX, Bak
kt and CME (Deribit Dominates CME and Bakkt in
BTC Options Volume, data source: skew.com).
Given the extreme volatility and uncertain beha­
viour associated with the Bitcoin and the debate
surrounding its true nature, it becomes interesting
to examine the valuation dynamics associated with
options that use the cryptocurrency as the underlying
asset. This makes the valuation and price dynamics in
the newly-launched Bitcoin options challenging since

CONTACT Akanksha Jalan akanksha.jalan@rennes-sb.com Rennes School of Business, 2 Rue Robert D’arbrissel, Rennes CEDEX 35065
© 2020 Informa UK Limited, trading as Taylor & Francis Group

the standard theories of market efficiency and inves­
tor behaviour may not apply to these markets.
Option valuation is a widely studied topic and as of
today, various theoretical option pricing models exist
for valuing different types of options. One of the first
in this regard is the Black and Scholes (1973) and
Merton (1973) model, that often considered to be the
standard in the industry (Hull 2014; Lee, Chen, and
Lee 2016). Rendleman and Bartter (1979) and Cox
et al. (1979) apply a binomial distribution to derive
the Black–Scholes model. Despite all its advantages,
the ‘classic’ Black–Scholes model fails to capture some
part of skewness, heavy tails and volatility. In the light
of these limitations, this type of option models have
been refined in two ways: allowing for stochasticity in
interest rate and/or volatility and the introduction of
jump-diffusion process (Bates 1991; Kou 2002; Kou
and Wang 2004; Psychoyios, Dotsis, and Markellos
2010). More precisely, the models have been extended
to allow for interest rate to be stochastic (e.g., Amin
and Jarrow 1992) or incorporate stochastic volatility
(e.g., Scott 1987; Wiggins 1987; Melino and Turnbull
1990, 1995; Stein and Stein 1991; Heston 1993 among
others) or both interest rate and volatility (Bakshi and
Chen 1997a, b; Bailey and Stulz 1989; Lee, Lee, and
Wei 1991 etc.).
Simultaneously, other classes of option models
have been developed and tested. For instance, Cox
and Ross (1976), Beckers (1980); Lee, Wu, and Chen
(2004), Chen, Lee, and Lee (2009), among others,
have developed the constant elasticity of variance
(CEV) models, while Rubinstein (1994) and Ait-
Sahalia and Lo (1998) propose the Markovian mod­
els. Geman, Madan, and Yor (2001) and Carr and Wu
(2004) use models based on Levy processes. The GAR
CH option models were developed by Duan (1995),
Heston and Nandi (2000) and further applied by Dra
gulescu and Yakovenko (2002), (Bates 2003); Wu
(2006), Christoffersen et al. (2006), Mercuri (2008),
Psychoyios, Dotsis, and Markellos (2010), Díaz-Her
nández and Constantinou (2019) etc.
Literature highlights the superiority of the Heston
model in terms of its satisfactory description of price
dynamics of the underlying asset (Bree, Daniel, and
Joseph 2003; Heston and Nandi 2000; Prange, Silva,
and Yakovenko 2004; Ballestra, Pacelli, and Zirilli
2007). Unlike GARCH models, the CEV model as
a particular ARCH-type specification can result in
omission of some volatility clusters that are observed
APPLIED ECONOMICS 2027
in the bitcoin market (Chu et al. 2017). Christoffers
en, Jacobs, and Mimouni (2006) compare the perfor­
mance of several models and demonstrate the com­
parative advantage of the Heston and Nandi (2000)
model in terms of agility in handling and yielding bet
ter results.
We focus on the extension of the Heston and Nan
di (2000) model with regime switching. Application
of the GARCH model in option pricing shows their
efficiency in option pricing. For instance, Escobar-
Anel, Rastegari, and Stentoft (2021) show that the
Heston-Nandi GARCH regime switching model
offers significant flexibility in accounting for features
of financial asset returns while still satisfying closed-
form recursive solutions, making it an efficient opti
on-pricing method in a realistic setting, i.e., in the
presence of the crisis periods. Díaz-Hernández and
Constantinou (2019) show that the Heston and
Nandi GARCH regime-switching model is also able
to approximate long memory behaviour in volatility
that is observed in Bitcoin market (Phillip, Chan, and
Shelton 2018 document evidence of long–memory in
the volatility dynamics). These aforementioned com­
parative characteristics of option valuation methods
motivate our choice of option valuation models.
In terms of Bitcoin options, pricing literature is
quite nascent. For example, Chen et al. (2020) apply
stochastic volatility option-pricing models to daily
Bitcoin price data from 31 July 2014 to
29 September 2017 to simulate Bitcoin call option
prices for different strikes and time to maturity.
Cretarola, Figà-Talamanca, and Patacca (2019) pro­
pose a bivariate model to measure Bitcoin price beha­
viour and a closed pricing formula for European-style
Bitcoin options using the Profile Quasi Maximum
Likelihood method.
We extend the literature on Bitcoin option pricing
by examining directly the current over (under)-
pricing of in-the-money Bitcoin options. To do so,
we compare the actual premiums with the optimum
prices based on the well-established Black-Scholes-
Merton model, and the more contemporary Heston-
Nandi GARCH (1,1) asymmetric multiple volatility-
regime model. To enhance our understanding of the
nature of Bitcoin in terms of its comparability vis-à-
vis other traditional commodities, we also compare
the implied volatility and risk characteristics of Bitco
in options with those in gold, crude oil and silver,
among others.
2028 A. JALAN ET AL.
For this purpose, we focus exclusively on options
traded on the Deribit platform given its average daily
trading volume of approximately 22 USD million for
the last year,1 equalling more than 95% of all Bitcoin
options contracts. Total Bitcoin options’ open interest
in January 2020 for Deribit was approximately 714
USD million compared to 44 USD million for Ledg
erX, 16 USD million for CME and 0.187 USD million
for Bakkt. In general, a rise in Bitcoin options’ open
interest indicates optimism in the Bitcoin option
market participants. Given the type of Bitcoin options
facilitated by Deribit, the Bitcoin spot market is con­
sidered as the underlying market in this study.
For pricing Bitcoin options, we apply the Black-
Scholes-Merton (BSM) and the Heston-Nandi GA
RCH (1,1) multiple regime model that allows for
the inclusion of several limiting regimes in the con
ditional variance dynamics. Volatility regimes are
derived using the Markov Switching GJR-GARCH
by Haas, Mittnik, and Paolella (2004), estimated
using maximum likelihood and a Bayesian appro
ach. The non-parametric test of Ross and Adams
(2012) is used to identify change points in Bitcoin
spot market return and its EWMA volatility.
Our contribution is manifolds. First, to the best of
our knowledge, this is the first study that directly
examines the over (under)-pricing of Bitcoin options
using actual option price data. Previous studies in this
area have focused their attention on capturing return
behaviour of the Bitcoin and/or predicting optimum
prices for vanilla Bitcoin options being traded. We
not only predict optimum prices based on the two
option-pricing models, but also shed light on the
efficiency of pricing currently prevailing in the newly-
launched Bitcoin derivative market. Our results sug­
gest overpricing for the range of near-the-money call
options on 27.01.2020 with strike price 8000. USD
II. Data and model set-up
This overpricing increases with the distance from the
maturity day.
Second, we are the first to document the risk
characteristics (Greeks) of near-the-money Bitcoin
options and compare them with those of traditional
commodity options for similar maturities. For exam­
ple, for Bitcoin options during the time frame studied,
we find a delta value of about 0.267 for strikes that
equal 8000–9000.2 The delta represents the expected
1
Based on Skew.com, a derivative tracking website.
2
We corroborate our delta results with those of other bitcoin options with different strikes on Deribit.com (date of access 09/11/2020). We find that the value of
delta varies significantly between 0.2 and 0.79, exhibiting a trend of increasing delta over longer maturity periods.
change in the corresponding option price for every 1
USD change in the spot price of Bitcoin. The other
commodities for similar time periods and maturities
(wheat, corn, soybean, crude oil, gold, silver and
coffee) exhibit an increase in delta over longer matur­
ity periods. Furthermore, Bitcoin option prices
become less sensitive to changes in the value of the
underlying Bitcoin for longer maturities within the
analysed time window (as evidenced by gamma),
which is consistent with the phenomenon observed
for contracts in soybean, crude oil WTI, gold, silver
and coffee. While Bitcoin option premium shows
increasing sensitivity to a one-point change in
implied volatility for contracts maturing later in the
future (vega), the theta values for Bitcoin options are
negative, suggesting a fall in option premium for
every additional day that passes. These trends are
also observed for option contracts in other commod­
ities studied. Lastly, Rho, which measures the change
in option premium to a one percentage-point change
in the risk-free rate remains largely stable across
different contracts with different expiration dates.
Third, we define heterogeneity in return and
volatility and two distinct regimes in the bitcoin
spot market: Regime 1 with probability 0.605 has
lower unconditional volatility (0.027), weak volati­
lity reaction to past negative returns (a2,1 = 0.019),
higher persistence of the volatility process (a ‘tran­
quil’ market). Regime 2 with probability 0.395 has
higher unconditional volatility (1.48), stronger vola
tility reaction to past negative returns (a2,2 = 0.230)
and lower persistence (a ‘turbulent’ market). We
find that the Heston-Nandi Garch (1,1) with two
volatility regimes predicts prices much closer to
actual compared to the BSM model.
Limited Bitcoin options data comes from Deribit,
including all available options contracts as on
27.01.2020, with maturities ranging from 31.1.20
20 to 25.9.2020 (see Appendix Tables A1a-f). The
appendix Tables A1a-d indicate that the only at-the
-money options are those with the strikes of 8000
USD and 9000, USD which form the sample for our
study.
 APPLIED ECONOMICS 2029

lnð S Þþðrf þ0:5σ 2 ÞT pffiffiffi

We find that 8000 USD-strike calls and puts expir­
ing in February trade at an implied volatility of about
56%, compared to similar-maturity options for the
S&P500 trading below 12% and 13% implied volati­
lity, respectively. 8000 USD-strike calls and puts expi
ring in September trade at about 70% implied volati­
lity, compared to 12% for calls and 15% for puts for
the S&P500. Interestingly, implied volatility for near-
the-money call options expiring in February 2020 for
wheat, corn, soybean, gold and silver is roughly 22%,
17%, 12%, 11% and 17%, much lower than Bitcoin
options with similar maturity.3
To analyse Bitcoin option prices, we collect daily
Bitcoin spot closing prices4starting 01.01.2018 (i.e.
shortly after the introduction of Bitcoin futures) up
to 27.01.2020. We focus exclusively on the post-
futures period since option valuation significantly
depends upon the state of volatility, which signifi­
cantly increased after introduction of Bitcoin
futures (Jalan, Matkovskyy, and Urquhart 2019).
The 3-Month Treasury Constant Maturity Rate
is used as the risk-free rate.5
We calculate returns for stock prices as follows:
rt ¼ InPt InPt 1 (1)
where rt is the daily return on day t and Pt and Pt 1
are the prices at day t and day t-1.
We start with the BSM (1973) options pricing
model, widely used in literature (Mixon 2009; An
and Suo 2009; Bates 2003; Brandt and Wu 2002). It
assumes a constant risk-free rate, constant volati­
lity of the underlying asset and a geometric Brown
ian motion of stock prices. To overcome this sim­
plicity, we further use the Heston (1993) and the
Heston and Nandi (2000) models, enabling us to
account for dynamic volatility.
Black-Scholes-Merton (BSM) options pricing
The BS (1979) model can be presented in a closed-
form as follows:
c ¼ SN ðd1Þ þ K � expð rf � T ÞN ðd2Þ
p ¼ K � expð rf � T ÞN ðd2Þ SN ð d1Þ
3
https://www.barchart.com/futures/quotes/KCZ20/volatility-greeks/dec-20, accessed 11 February 2020.
4
Closing prices come from Coinbase that accounts for the highest trading volume in Bitcoin, roughly 22.82% of market share.
5
www.fred.stlouisfed.org
where d1 ¼ K σ pffiTffi and d2 ¼ d1 σ T ,
S is the underlying Bitcoin price, K is the strike
price of the option, T is the option’s time to matur­
ity, rf is the risk-free rate, σ is the Bitcoin volatility
(we start with annualized daily Bitcoin volatility,
i.e., the product of the standard deviation of daily
returns by the square root of 364, which equals
0.6335), and N() is the standard normal density.
Monte-Carlo approach
In general, the price formula is as follows:
�
Cðt; xÞ ¼ e rðT tÞ Ef ZTt;x (4)
For a price evaluation purpose, we need to be able
to simulate independent copies of the random vari­
able ZTt;x by means of the following simple formula:
�� � �
t;x 1 2 pffiffiffiffiffiffiffiffiffiffiffi
ZT ¼ x � exp r σ ðT tÞ þ σ T tu
2
u,Nð0; 1Þ ð5Þ
Heston and Nandi (2000) GARCH model is speci­
fied as follows:
pffiffiffiffi
rt ¼ rf þ λht þ h t zt (6)
� pffiffiffiffiffiffiffiffi�2
ht ¼ ω þ bht 1 þ α zt 1 γ ht 1 (7)
where rt is the log return calculated as ln(St/St-1) and
St is the spot price at time t; rf is the risk-free rate (as
represented by the 3-Month Constant Maturity
Treasury that yields 1.55%, 27.01.2020); ht is the
conditional variance of the log return at time t; zt
is the standard normal error; λ is the variance risk
premium; b captures the influence of the past con­
ditional variance and thus shows the kurtosis of the
log returns’ distribution; γ is the leverage effect
(Christie 1982) and controls for the asymmetry of
shocks (for a symmetrical distribution γ ¼ λ ¼ 0; if
γ < 0 the distribution is positively skewed). The
(2)
parameters λ; ω; b; a; γ, are estimated using maxi­
mum likelihood approach. Risk-neutrality implies
(3)
that the expected return from an investment equals
2030 A. JALAN ET AL.

the risk-free rate which is also used for discounting To estimate volatility, a GJR-GARCH model,
option cash flows. introduced by Bollerslev (1986), and further extend
Thus, Heston and Nandi (2000) GARCH model ed by Glosten, Jagannathan, and Runkle (1993) to
is formalized as accommodate asymmetry, is applied. In such mod­
pffiffiffiffi els, the effect of past squared returns on current
1
rt ¼ rf ht þ ht ztrn (8) conditional variance depends on the sign of lagged
2 returns. Incorporating the regime-switching mecha
� pffiffiffiffiffiffiffiffi�2 nism is effective in capturing time-series behaviour
ht ¼ ω þ bht 1 þ α ztrn 1 γrn ht 1 (9) (Klaassen 2002). In this study we use Markov-
Switching GJR-GARCH7 by Haas, Mittnik, and
� �
1 pffiffiffiffi Paolella (2004) to capture different regimes in vola­
ztrn ¼ zt þ λ þ ht (10) tility estimated by means of ML and Bayesian (a ran
2
dom-walk Metropolis-Hastings algorithm) approa
1 ches. The model can be written as
γrn ¼ γ þ λ þ (11) �
2 yt jðst ¼ k; Lt 1 Þ~S 0; hk;t ; v (15)
Estimation is undertaken using maximum likelihood.
�
The value of a Bitcoin call option is the dis­ hk;t ;a0;k þ a1;k þ a2;k fyt 1 < 0g y2t þ βk hk;t 1 ; k
1
counted expected value of the amount by which 2 f1; 2g
the option is in-the-money at expiration day T. The
(16)
final option valuation is undertaken as:
rf ðT tÞ rn
c¼e Et ðmaxðST K; 0ÞÞ
ð
rf ð T t Þ 1
� �
e e iφ ln Kφ rnðϕþ1Þ III. Results and discussion
¼ St =2 þ < dϕ
π 0 iϕ Black-Scholes-Merton (BSM) estimates
rf ðT tÞ
Ke
2 In Table 1 the Bitcoin Black-Scholes-Merton (BSM)
ð1 � �
Ke rf ðT tÞ
e iφ ln Kφ rnðϕÞ price is calculated as on 27.01.2020, with rf = 1.55%,
< dϕ and annualized daily Bitcoin volatility, 0.6335. While
π 0 iϕ
the put-call parity holds for option values calculated
(12)
using the BSM, it does not hold when using market
where e rf ðT tÞ is the continuous compounded dis­ prices, given the model’s limitations. We obtain
count factor and ðT tÞ is the number of days similar results using the Monte-Carlo approach for
until expiration. calls and puts with Bitcoin spot price 8617.95 USD
The Markov Switching GJR-GARCH6 by Haas, as on 27.01.2020.
Mittnik, and Paolella (2004) is used to capture Time-sensitivity of Bitcoin option prices is
different regimes in volatility. depicted in Fig 1–2.
The model can be written as It shows that greater the time to maturity, stee­
� per the curve. In addition, we calculate the Greeks
yt jðst ¼ k; Lt 1 Þ~S 0; hk;t ; v (13) for the various near-the-money Bitcoin calls and
� puts to study the different dimensions of risk inher­
hk;t ;a0;k þ a1;k þ a2;k fyt 1 < 0g y2t 1 þ βk hk;t 1 ; k ent in Bitcoin option contracts (see Table 2).
2 f1; 2g Here we find delta values for calls and puts to be
(14) positive and negative, respectively, which is consistent
with their design. Delta remains largely stable at
and is estimated by means of ML and Bayesian
around 0.267, meaning that for every 1 USD change
(a random-walk Metropolis-Hastings algorithm)
in spot Bitcoin prices, the corresponding option price
approaches.
6
Other GARCH models also have been tested, but AIC/BIC of the GJR-GARCH model derived relatively better results.
7
Other GARCH models also have been tested, but based on the AIC/BIC criteria, the GJR-GARCH provides relatively better results.
 APPLIED ECONOMICS 2031

Table 1. The Black-Scholes-Merton value of at-the-money call and put options for different maturities
(strikes 8000, USD 9000$).
Maturity Calls BSM price strike actual price Puts BSM price
31/01/2020
654.7853 8000 641.84 35.47282
89.674 9000 641.84 470.1912
07/02/2020
755.0722 8000 675.64 133.3758
224.7369 9000 675.64 602.5722
28/02/2020
982.1951 8000 712.66 353.3514
486.5015 9000 712.66 856.2961
27/03/2020
1201.296 8000 800.52 562.9322
726.9143 9000 800.52 1085.999
26/06/2020
1692.144 8000 974.42 1022.92
1255.012 9000 974.42 1579.378
25/09/2020
2047.898 8000 1132.88 1347.931
1634.693 9000 1132.88 1924.475

Figure 1. Sensitivity of the call price to maturity (strike = 8000 USD). Note: later the date of maturity, the steeper the curve.

will increase by roughly 0.267. This is in sharp con­
trast to options in other commodities, i.e., wheat,
corn, soybean, crude oil, gold, silver and coffee
which exhibit a sharply increasing delta over longer
maturity periods.8
Gamma, on the other hand, seems to decline as
time to maturity increases. This implies that the
option prices become less and less sensitive to
changes in the value of the underlying Bitcoin for
longer maturities. This result is consistent with the
findings for the contracts in other commodities like
soybean, crude oil WTI, gold, silver and coffee. Int
erestingly, for options contracts in wheat, gamma
increases over time and then becomes constant.
Vega increases with the time to expiration, sug­
gesting a higher sensitivity of option premium to
a one-point change in implied volatility for con­
tracts maturing later. Similar patterns are observed
for other commodity options examined.
Theta, the reactivity of option premium to a one-
day change in time to maturity measures the
expected fall in value of the option premium with
the passage of an additional day. For a typical call,
the ‘time decay’ or the fall in option premium
accelerates exponentially. For both calls and puts

8
For Greeks on different commodity options, refer to excel file in supplementary material.
2032 A. JALAN ET AL.

Figure 2. Sensitivity of the put price to maturity (strike = 8000 USD). Note: later the date of maturity, the steeper the curve.

Table 2. The Greeks for the calls and puts near-the-money.

Maturity Strike delta gamma vega theta rho type
31.01 8000 0.267198 0.00057799 297.1451 −8546.96 21.61681 call
9000 0.267198 0.00057799 297.1451 −8550.77 24.31891 call
8000 −0.7328 0.00057799 297.1451 −8422.98 −66.2803 put
9000 −0.7328 0.00057799 297.1451 −8411.3 −74.5654 put
07.02 8000 0.267198 0.00034854 492.7594 −5166.11 21.61036 call
9000 0.267198 0.00034854 492.7594 −5169.92 24.31166 call
8000 −0.7328 0.00034854 492.7594 −5042.17 −182.217 put
9000 −0.7328 0.00034854 492.7594 −5030.48 −204.994 put
28.02 8000 0.267198 0.00020435 840.4532 −3041.48 21.59105 call
9000 0.267198 0.00020435 840.4532 −3045.29 24.28993 call
8000 −0.7328 0.00020435 840.4532 −2917.65 −529.611 put
9000 −0.7328 0.00020435 840.4532 −2905.98 −595.812 put
27.03 8000 0.267198 0.00014924 1150.838 −2229.36 21.56532 call
9000 0.267198 0.00014924 1150.838 −2233.16 24.26098 call
8000 −0.7328 0.00014924 1150.838 −2105.68 −991.837 put
9000 −0.7328 0.00014924 1150.838 −2094.02 −1115.82 put
26.06 8000 0.267198 0.00009407 1825.69 −1416.42 21.48191 call
9000 0.267198 0.00009407 1825.69 −1420.21 24.16715 call
8000 −0.7328 0.00009407 1825.69 −1293.22 −2486.47 put
9000 −0.7328 0.00009407 1825.69 −1281.6 −2797.28 put
25.09 8000 0.267198 0.00007431 2311.246 −1125.1 21.39883 call
9000 0.267198 0.00007431 2311.246 −1128.88 24.07369 call
8000 −0.7328 0.00007431 2311.246 −1002.37 −3969.52 put
9000 −0.7328 0.00007431 2311.246 −990.805 −4465.72 put
In the above table, Delta shows the dollar changes in option price given a 1 USD change in the underlying asset price, Gamma measures the rate of change in
delta, i.e. the % change in option price for a 1% change in the underlying asset price, Vega depicts changes in option price given a change in volatility, Theta
shows changes in option price given a change in the time to maturity, and Rho measures changes in option price for a given change in the risk-free rate.

in our sample, theta values are negative, suggesting
a fall in option premium for every additional day
expired. However, not only are the theta values less
negative for puts throughout, but also become less
and less negative for contracts expiring later in the
future. This is consistent with the fact that closer
the contract is to maturity, greater is the value lost
owing to passage of time. Similar behaviour is
exhibited by other commodities options studied.
Lastly, Rho, which measures the change in
option premium to a one percentage-point change
in the risk-free rate, remains largely stable across
different expiration dates.
Heston-Nandi Garch (1,1) with Markov
regime-switching GJR-GARCH model
The main assumptions underlining the BSM
model – constant volatility, Gaussianity and geo­
metric Brownian motion processes for returns, do
not apply to the Bitcoin. For instance, the 20, 40
and 364-day historical volatility of the spot Bitcoin
 APPLIED ECONOMICS 2033

market is presented in Figure 3, showing repeated
peaks and troughs in volatility.
The daily log-returns of the Bitcoin spot market
for the sample period 01.01.2018–27.01.2020 is
depicted in Figure 4 (see Table 3 for short general
statistics), where one observes volatility-clustering
and the presence of outliers. This could mean that
the conditional variance is time-varying, requiring
a regime-switching specification.
Non-parametric change point analysis (Ross and
Adams 2012) by means of the Lepage, Kolmogorov-
Smirnov and Cramer-von-Mises statistics for detec
ting distributional changes about assumptions regard­
ing the sequence distribution, flagged a number of

v
0.06
Days 20
0.02
0.01 0.03 0.05
Days 40
Days 364
0.035
0.020
0.08
Max
0.05
0.02

2016 2017 2018 2019 2020

Index

Figure 3. Historical volatility of daily spot Bitcoin prices over 2016–2020 (Source: Coinbase). Note: the graph shows the 20, 40 and 364-
day historical volatility to find the maximum. An allocation to the risky bitcoin will be determined by taking a target volatility and
dividing by its maximum. The minimum 20, 40 and 364-day historical volatility is observed on 2016–12-19 and equals 0.008166536,
0.009663778 and 0.01970605, respectively.
0.15
0.10
Return.coinbase

0.05
0.00
-0.05
-0.10
-0.15

0 200 400 600

Index

Figure 4. Daily log-returns of the bitcoin spot market (Coinbase) for the period 01.01.2018–27.01.2020.
2034 A. JALAN ET AL.

Table 3. Summary statistics of Bitcoin spot market return.

min: 0.1380555
max: 0.1667548
median: −0.0001057557
mean: −0.0008542762
estimated sd: 0.03332661
estimated skewness: −0.1247513
estimated kurtosis 6.447164

changes point, meaning the presence of several
‘regimes’ in the observed data (see Figure 5). Also,
we document change points in the Bitcoin spot return
volatility estimations (EWMA, λ = 0.97; Figure 6).
Given the presence and identification of change
points above, the Markov-switching GJR-GARCH
0.15
0.10
0.05
x
model is estimated applying a random-walk Metro
polis-Hastings algorithm. Using the ML parameter
estimates as starting values, the model is estimated
using adaptive MCMC sampler of Vihola (2012) to
explore the joint posterior distribution of the model
parameters and avoid convergence to local maxima

0.00
-0.05
-0.10
-0.15

0 2 00 400 60 0

Index

Figure 5. Change points of Bitcoin spot market return (non-parametric change point based on Ross and Adams 2012).
0.030
0.020
ewma

0.010
0.000

0 20 0 4 00 600

Index

Figure 6. Change points of Bitcoin return spot market return volatility (EWMA model, lambda = 0.97; non-parametric change point
based on Ross and Adams 2012). The change points correspond to 2018–05-15, 2018–10-26, 2018–11-27, 2019–02-02, 2019–06-04,
2019–11-17.
 APPLIED ECONOMICS 2035

caused by ML estimation (Mullen et al. 2011).
Results are presented in Table A3.
Estimates indicate different volatility-persistence
across both regimes (0.94 and 0.76 indicating
a higher probability to switch from regime 2 to
regime 1, than the other way round). The first
regime (probability = 0.61) has lower uncondi­
tional volatility (0.0271), weak volatility reaction
to past negative returns (a2,1 = 0.019), higher per­
sistence of the volatility process (‘tranquil’ market).
The second regime (probability = 0.39) has higher
unconditional volatility 1.48, stronger volatility
reaction to past negative returns (a2,2 = 0.23) and
lower persistence (‘turbulent’ market).
Finally, we estimate the Heston-Nandi Garch
(1,1) model using the Markov-switching GJR -
GARCH model volatility and probabilities of
states (see Table 4 and Table 5 for coefficients).
Bitcoin options prices are simulated for each day
beyond the valuation date (27.01. 2020) up to the
maturity date. Volatility control mechanics are imp
osed to simulate prices. Maximum leverage is set at
90% (source: Deribit).
Simulations indicate general overpricing of
the Bitcoin call with strike 8000 USD and
maturity 30.01.2020. It has a Heston-Nandi
GARCH (1,1) and BSM price of 569.5521
USD and 654.7853, USD, respectively, com­
pared to its current price, 641.84. USD. This
suggests that not only is the call slightly over­
priced, the Heston-Nandi model predicts prices
closer to the actual ones. On the other hand,
we document general underpricing for call con­
tracts maturing on 28.02.2020. The Heston-
Nandi GARCH(1,1) price is 721.9123 USD
compared to the actual call price of
712.66. USD
IV. Conclusion
This study takes a first look at Bitcoin options
pricing. We compare actual option prices to

Table 4. The Markov-switching GJR -GARCH model parameters (across regime constrained parameters: nu).
Mean SD SE TSSE RNE
alpha0_1 0.0000 0.0000 0.0000 0.0000 Inf
alpha1_1 0.0088 0.0039 0.0001 0.0002 0.1187
alpha2_1 0.0273 0.0080 0.0002 0.0004 0.1387
beta_1 0.9207 0.0116 0.0002 0.0005 0.2003
nu_1 37.9253 20.47660.4095 1.0192 0.1615
alpha0_2 0.0007 0.0003 0.0000 0.0000 0.0961
alpha1_2 0.2665 0.1004 0.0020 0.0055 0.1310
alpha2_2 0.1852 0.0884 0.0018 0.0047 0.1435
beta_2 0.4990 0.1348 0.0027 0.0088 0.0931
P_1_1 0.7556 0.0492 0.0010 0.0024 0.1657
P_2_1 0.3749 0.0616 0.0012 0.0034 0.1309
Posterior mean transition matrix:
t+1|k=1 t+1|k=2
t|k=1 0.7556 0.2444
t|k=2 0.3749 0.6251
Posterior mean stable probabilities: State 1–0.6054, State 2–0.3946. Acceptance rate MCMC sampler: 28.2%; nmcmc: 12,500, nburn: 5000,
nthin: 5, DIC: −3266.9059.

Table 5. Heston-Nandi Garch (1,1) parameter estimation.

Parameters:
lambda omega alpha beta gamma rf
-0.500000 0.001090 0.000109 0.100000 0.000000 0.015381
Coefficients:
-1.417e+01 1.551e-04 1.568e-04 7.048e-01 0.000e+00
Mean: −0.01497513 Mean sigma2: 0.001056634
Variance: 0.001076253 Mean sigma4: 1.214152e-06
Skewness: −0.1214448 Mean sigma6: 1.536759e-09
Kurtosis: 3.303663 Mean sigma8: 2.168405e-12
Persistence: 0.7048428
Log-Likelihood: 3447.813; persistence and variance: 0.7048428 and 0.001056634, respectively.
2036 A. JALAN ET AL.
optimum prices derived using the Black-Scholes-
Merton and the Heston-Nandi GARCH(1,1) model
with two regimes. We find that the Heston-Nandi
model predicts prices more accurately than the
Black-Scholes-Merton model.
We also provide an insight to the risk character­
istics of Bitcoin options by comparing Bitcoin
Greeks with other commodity options. We find
that the Bitcoin options offer a relatively stable
delta. More
over, the Bitcoin option (i) prices are less sensitive
to changes in the value of the underlying Bitcoin
for longer maturities (gamma); (ii) premium shows
incre
asing sensitivity to a one-point change in implied
volatility for contracts maturing later in the future
(vega); (iii) premium falls for every additional day
that passes (theta); and (iv) change in premium to
a one percentage-point change in the risk-free rate
remains (Rho) largely stable across different con­
tracts with different expiration dates.
We believe that these results are significant
and potentially useful to researchers, practi­
tioners, and Bitcoin market participants to
facilitate better portfolio and risk-management
decisions. Lastly, this study also provides regu­
lators an important insight to the Bitcoin
option market to better understand the nuances
of this market. It would be interesting to extend
the findings of this study by volatility and jump
risk in the time-series prediction of Bitcoin call
and put opti
on returns and further compare it to the one of
the commodity options. We leave that to future
research.
Acknowledgments
The authors would like to thank the Editor Mark Taylor and
the anonymous reviewer. Their feedback and suggestions
helped bring the paper to its current shape.
Disclosure statement
No potential conflict of interest was reported by the authors.
ORCID
Saqib Aziz http://orcid.org/0000-0001-6390-6406
References
Ait-Sahalia, Y., and A. W. Lo. 1998. “Nonparametric Estimation
of State-price Densities Implicit in Financial Asset Prices.” Jour
nal of Finance 53 (2): 499–547. doi:10.1111/0022-1082.215228.
Amin, K. I., and R. A. Jarrow. 1992. “Pricing Options on
Risky Assets in a Stochastic Interest Rate Economy.”
Mathematical Finance 2 (4): 217–237. doi:10.1111/
j.1467-9965.1992.tb00030.x.
An, Y., and W. Suo. 2009. “An Empirical Comparison of Option
Pricing Models in Hedging Exotic Options.” Financial
Management 38: 889–914. doi:10.1111/j.1755-
053X.2009.01060.x.
Bailey, W., and R. M. Stulz. 1989. “The Pricing of Stock Index
Options in a General Equilibrium Model.” Journal of Finan
cial and Quantitative Analysis 24 (1): 1–12. doi:10.2307/
2330744.
Bakshi, G. S., and Z. Chen. 1997a. “An Alternative Valuation
Model for Contingent Claims.” Journal of Financial
Economics 44 (1): 123–165.
Ballestra, L. V., G. Pacelli, and F. Zirilli. 2007. “A Numerical
Method to Price Exotic Path-dependent Options on an
Underlying Described by the Heston Stochastic Volatility
Model.” Journal of Banking & Finance 31 (11): 3420–3437.
doi:10.1016/j.jbankfin.2007.04.013.
Bates, D. S. 1991. “The Crash of ‘87: Was It Expected? The
Evidence from Options Markets.” Journal of Finance 46 (3):
1009–1044. doi:10.1111/j.1540-6261.1991.tb03775.x.
Bates, D. S. 2003. “Empirical Option Pricing: A Retrospection.”
Journal of Econometrics 16: 387–404. doi:10.1016/S0304-
4076(03)00113-1.
Beckers, S. 1980. “The Constant Elasticity of Variance Model and
Its Implications for Option Pricing.” Journal of Finance 35 (3):
661–673.
Black, F., and M. Scholes. 1973. “Pricing of Options and
Corporate Liabilities.” The Journal of Political Economy
81: 637–654. doi:10.1086/260062.
Bollerslev, T. 1986. “Generalized Autoregressive Conditional
Heteroskedasticity.” Journal of Econometrics 31 (3):
307–327. doi:10.1016/0304-4076(86)90063-1.
Bouri, E., P. Molnár, G. Azzi, D. Roubaud, and L. I. Hagfors.
2017. “On the Hedge and Safe Haven Properties of Bitcoin:
Is It Really More than a Diversifier?” Finance Research
Letters 20: 192–198. doi:10.1016/j.frl.2016.09.025.
Brandt, M. W., and T. Wu. 2002. “Cross-sectional Tests of
Deterministic Volatility Functions.” Journal of Empirical
Finance 9: 525–550. doi:10.1016/S0927-5398(02)00009-9.
Bree, D. S., G. Daniel, and N. L. Joseph (2003) “Goodness-of
-Fit of the Heston Model.” Ninth Annual Meeting of the
Society of Computational Economics, University of
Washington, Seattle, USA July. Available at: http://
arxiv.org/abs/cs.CE/0305055

Carr, P., and L. Wu. 2004. “Time-changed Levy Processes and
Option Pricing.” Journal of Financial Economics 71 (1):
113–141. doi:10.1016/S0304-405X(03)00171-5.
Chen, R. R., C.-F. Lee, and H. H. Lee. 2009. “Empirical
Performance of the Constant Elasticity Variance Option
Pricing Model.” Review of Pacific Basin Financial Markets
and Policies 12 (2): 177–217. doi:10.1142/S0219091509001605.
Christie, A. A. 1982. “The Stochastic Behavior of Common
Stock Variances: Value, Leverage and Interest Rate Effects.”
Journal of Financial Economics (10): 407–432. doi:10.1016/
0304-405X(82)90018-6.
Christoffersen, P., K. Jacobs, and K. Mimouni (2006). “An
Empirical Comparison of Affine and Non-affine Models for
Equity Index Options.” (Unpublished doctoral dissertation).
Christoffersen, P., S. L. Heston, and C. Jacobs. 2006. “Option
Valuation with Conditional Skewness.” Journal of Econome
trics 131: 253–284. doi:10.1016/j.jeconom.2005.01.010.
Chu, J., S. Chan, S. Nadarajah, and J. Osterrieder. 2017. “GARCH
Modelling of Cryptocurrencies.” Journal of Risk and Financial
Management 10 (4): 17. doi:10.3390/jrfm10040017.
Cox, J. C., and S. A. Ross. 1976. “The Valuation of Options for
Alternative Stochastic Processes.” Journal of Financial
Economics 3 (1): 145–166.
Cox, J.C., S. A. Ross, and M. Rubinstein. 1979. “Option pri­
cing: A simplified approach.” Journal of Financial
Economics 7 (3): 229–263.
Cretarola, A., G. Figà-Talamanca, and M. Patacca. 2019. “Market
Attention and Bitcoin Price Modeling: Theory, Estimation and
Option Pricing.” Decisions in Economics and Finance 43 (1):
187–228.
Díaz-Hernández, A., and N. Constantinou. 2019. “A Multiple
Regime Extension to the Heston–Nandi GARCH(1,1)
Model.” Journal of Empirical Finance 53: 162–180. doi:10.
1016/j.jempfin.2019.05.004.
Dragulescu, A. A., and V. M. Yakovenko. 2002. “Probability
Distribution of Returns in the Heston Model with
Stochastic Volatility.” Quantitative Finance 2: 443–453.
Duan, J. C. 1995. “The GARCH Option Pricing Model.”
Mathematical Finance 5 (1): 13–32. doi:10.1111/j.1467-
9965.1995.tb00099.x.
Dyhrberg, A. H. 2016. “Hedging Capabilities of Bitcoin.” Is It
the Virtual Gold? Finance Research Letters 16: 139–144.
doi:10.1016/j.frl.2015.10.025.
Escobar-Anel, M., J. Rastegari, and L. Stentoft. 2021. “Option
Pricing with Conditional GARCH Models.” European
Journal of Operational Research 289 (1): 350–363. doi:10.10
16/j.ejor.2020.07.002.
Geman, H., D. B. Madan, and M. Yor. 2001. “Time Changes
for Levy Processes.” Mathematical Finance 11 (1): 79–96.
doi:10.1111/1467-9965.00108.
Glosten, L. R., R. Jagannathan, and D. E. Runkle. 1993. “On the
Relation between the Expected Value and the Volatility of the
Nominal Excess Return on Stocks.” The Journal of Finance 48
(5): 1779–1801. doi:10.1111/j.1540-6261.1993.tb05128.x.
Haas, M., S. Mittnik, and M. S. Paolella. 2004. “A New
Approach to Markov-Switching GARCH Models.” Journal
APPLIED ECONOMICS 2037
of Financial Econometrics 2 (4): 493–530. doi:10.1093/jjfi­
nec/nbh020.
Heston, S. L. 1993. “A Closed-form Solution for Options with
Stochastic Volatility with Applications to Bond and Curre
ncy Options.” Review of Financial Studies 6 (2): 327–343.
doi:10.1093/rfs/6.2.327.
Heston, S. L., and S. Nandi. 2000. “A Closed-form GARCH
Option Valuation Model.” Review of Financial Studies 13
(3): 585–625. doi:10.1093/rfs/13.3.585.
Hou, A., W. Wang, C. Chen, and W. Härdle. 2020. “Pricing
cryptocurrency options.” Journal of Financial Econometrics
18 (2): 250–279. doi:10.1093/jjfinec/nbaa006
Hull, J. C. 2014. Options, Futures, and Other Derivatives. 9th
ed. Englewood Cliffs: Prentice Hall.
Jalan, A., R. Matkovskyy, and A. Urquhart (2019). “What If
Bitcoin Futures Had Never Been Introduced?.” Available at
SSRN 3491272, https://papers.ssrn.com/sol3/papers.cfm?
abstract_id=3491272
Klaassen, F. 2002. “Improving GARCH Volatility Forecasts
with Regime-switching GARCH.” Empirical Economics 27:
363–394. doi:10.1007/s001810100100.
Kochling, G., J. Muller, and P. N. Posch. 2019. “Does the
Introduction of Futures Improve the Efficiency of Bitcoin?”
Finance Research Letters 30: 367–370. doi:10.1016/j.
frl.2018.11.006.
Kou, S. G. 2002. “A Jump-diffusion Model for Option
Pricing.” Management Science 48 (8): 1086–1101. doi:10.12
87/mnsc.48.8.1086.166.
Kou, S. G., and H. Wang. 2004. “Option Pricing under
a Double Exponential Jump Diffusion Model.” Manageme
nt Science 50 (9): 1178–1192.
Lee, C.-F., T. P. Wu, and R. R. Chen. 2004. “The Constant
Elasticity of Variance Models: New Evidence from S&P 500
Index Options.” Review of Pacific Basin Financial Markets and
Policies 7 (2): 173–190. doi:10.1142/S021909150400010X.
Lee, C.-F., Y. Chen, and J. Lee. 2016. “Alternative Methods to
Derive Option Pricing Models: Review and Comparison.”
Review of Quantitative Finance and Accounting 47 (2):
417–451.
Lee, J. C., C.-F. Lee, and K. J. Wei. 1991. “Binomial Option
Pricing with Stochastic Parameters: A Beta Distribution
Approach.” Review of Quantitative Finance and Account
ing 1 (4): 435–448. doi:10.1007/BF02408402.
Matkovskyy, R., and A. Jalan. 2019. “From Financial Markets to
Bitcoin Markets: A Fresh Look at the Contagion Effect.” Finan
ce Research Letters 31: 93–97. doi:10.1016/j.frl.2019.04.007.
Melino, A., and S. M. Turnbull. 1990. “Pricing Foreign Currency
Options with Stochastic Volatility.” Journal of Econometrics 45
(1): 239–265. doi:10.1016/0304-4076(90)90100-8.
Melino, A., and S. M. Turnbull. 1995. “Misspecification and
the Pricing and Hedging of Long-term Foreign Currency
Options.” Journal of International Money and Finance 14
(3): 373–393. doi:10.1016/0261-5606(95)00003-W.
Mercuri, L. 2008. “Option Pricing in a Garch Model with
Tempered Stable Innovations.” Finance Research Letters 5
(3): 172–182. doi:10.1016/j.frl.2008.05.003.
2038 A. JALAN ET AL.
Merton, R. 1973. “Theory of Rational Option Pricing.” Bell
Journal of Economics and Management Science 4: 141–183.
doi:10.2307/3003143.
Mixon, S. 2009. “Option Markets and Implied Volatility: Past
versus Present.” Journal of Financial Economics 94:
171–191. doi:10.1016/j.jfineco.2008.09.010.
Nakamoto, S. (2008). “Bitcoin: “A Peer-to-peer Electronic Cash
System.” Bitcoin.–URL: https://bitcoin.org/bitcoin.pdf
Phillip, A., J. S. K. Chan, and P. Shelton. 2018. “A New Look at
Cryptocurrencies.” Economics Letters 163: 6–9. doi:10.10
16/j.econlet.2017.11.020.
Prange, R. E., A. C. Silva, and V. M. Yakovenko. 2004. “Expo
nential Distribution of Financial Returns at Mesoscopic
Time Lags: A New Stylized Fact.” Physica A 344: 227–235.
doi:10.1016/j.physa.2004.06.122.
Psychoyios, D., G. Dotsis, and R. N. Markellos. 2010. “A Jump
Diffusion Model for VIX Volatility Options and Futures.” Revi
ew of Quantitative Finance and Accounting 35 (3): 245–269.
Rendleman, R.J. and Bartter, B.J. 1979. “Two-State Option
Pricing.” The Journal of Finance 34: 1093–1110.
Ross, G. J., and N. M. Adams. 2012. “Two Nonparametric
Control Charts for Detecting Arbitrary Distribution Chan
ges.” Journal of Quality Technology 44 (2): 102. doi:10.1080/
00224065.2012.11917887.
Rubinstein, M. 1994. “Implied Binomial Trees.” Journal of
Finance 49 (3): 771–818. doi:10.1111/j.1540-6261.1994.
tb00079.x.
Scott, L. O. 1987. “Option Pricing When the Variance Changes
Randomly: Theory, Estimation, and an Application.” Journal
of Financial and Quantitative Analysis 22 (4): 419–438.
doi:10.2307/2330793.
Stein, E. M., and J. C. Stein. 1991. “Stock Price
Distributions with Stochastic Volatility: An Analytic
Approach.” Review of Financial Studies 4 (4):
727–752. doi:10.1093/rfs/4.4.727.
Urquhart, A., and H. Zhang. 2019. “Is Bitcoin a Hedge or Safe
Haven for Currencies? An Intraday Analysis.” International
Review of Financial Analysis 63: 49–57. doi:10.1016/j.irfa.2019.
02.009.
Vihola, M. 2012. “Robust Adaptive Metropolis Algorithm
with Coerced Acceptance Rate.” Statistics and Computing
22 (5): 997–1008. doi:10.1007/s11222-011-9269-5.
Wiggins, J. B. 1987. “Option Values under Stochastic
Volatility: Theory and Empirical Estimates.” Journal of
Financial Economics 19 (2): 351–372. doi:10.1016/0304-
405X(87)90009-2.
Wu, C. C. 2006. “The GARCH Option Pricing Model:
A Modification of Lattice Approach.” Review of
Quantitative Finance and Accounting 26 (1): 55–66.
doi:10.1007/s11156-006-7033-2.
Yermack, D. 2015. “Chapter 2 - Is Bitcoin a Real Currency?
An Economic Appraisal.” Handbook of Digital Currency.
Academic Press, 31–43. doi:10.1016/B978-0-12-802117-
0.00002-3.
 APPLIED ECONOMICS 2039

APPENDIX

Table A1a. Bitcoin options, maturity 31 January 2020, $8617.95, 27/01/2020

Calls Puts
Last Vol diff dummy Strike Last Vol diff dummy
0.4425 - 3617.95 0 5000 0.0005 1 3617.95 0
0.394 - 3117.95 0 5500 0.001 - 3117.95 0
0.3385 - 2617.95 0 6000 0.0005 - 2617.95 0
0.26 - 2117.95 0 6500 0.0005 6 2117.95 0
0.184 - 1867.95 0 6750 0.001 - 1867.95 0
0.16 - 1617.95 0 7000 0.0005 1.3 1617.95 0
0.1575 - 1367.95 0 7250 0.0005 4 1367.95 0
0.125 - 1117.95 0 7500 0.0005 15.2 1117.95 0
0.0935 - 867.95 0 7750 0.001 91.1 867.95 0
0.078 22.5 617.95 0 8000 0.002 55.5 617.95 0
0.0505 35.9 367.95 0 8250 0.004 63.4 367.95 0
0.0255 89.2 117.95 0 8500 0.0105 182 117.95 0
0.0135 97.1 −132.05 1 8750 0.025 15.4 −132.05 1
0.0065 76.7 −382.05 1 9000 0.0475 1.3 −382.05 1
0.0025 47.2 −632.05 1 9250 0.0805 2.1 −632.05 1
0.001 81.8 −882.05 1 9500 0.1185 0.1 −882.05 1
0.0005 51.3 −1132.05 1 9750 - - −1132.05 0
0.0005 61.3 −1382.05 1 10,000 0.21 - −1382.05 1
0.001 5.1 −1632.05 1 10,250 - - −1632.05 0
0.001 4 −1882.05 1 10,500 - - −1882.05 0
0.0005 21.3 −2132.05 1 10,750 - - −2132.05 0
0.0005 4 −2382.05 1 11,000 - - −2382.05 0
0.0005 - −2632.05 1 11,250 - - −2632.05 0
0.001 - −2882.05 1 11,500 - - −2882.05 0
0.0005 - −3382.05 1 12,000 - - −3382.05 0

Table A1b. Bitcoin options, maturity: 7 February 2020, spot price $8617.95, 27/01/2020
Calls Puts
Last Vol diff dummy Strike Last Vol diff dummy
- - 2117.95 0 6500 0.0005 4.2 2117.95 0
- - 1867.95 0 6750 0.001 10 1867.95 0
- - 1617.95 0 7000 0.0025 - 1617.95 0
- - 1367.95 0 7250 0.0025 1.1 1367.95 0
0.1115 - 1117.95 0 7500 0.003 1.9 1117.95 0
- - 867.95 0 7750 0.005 134.6 867.95 0
0.059 - 617.95 0 8000 0.0095 25.8 617.95 0
0.062 6 367.95 0 8250 0.015 90.2 367.95 0
0.0385 17.5 117.95 0 8500 0.0265 118 117.95 0
0.0255 43.9 −132.05 1 8750 0.041 44.9 −132.05 1
0.017 59.1 −382.05 1 9000 - - −382.05 0
0.011 149.3 −632.05 1 9250 - - −632.05 0
0.0075 42.2 −882.05 1 9500 - - −882.05 0
0.005 45.8 −1132.05 1 9750 - - −1132.05 0
0.0035 24 −1382.05 1 10,000 - - −1382.05 0
0.003 20.1 −1632.05 1 10,250 - - −1632.05 0
0.0025 30 −1882.05 1 10,500 - - −1882.05 0
0.0025 39.2 −2132.05 1 10,750 - - −2132.05 0
- - 2117.95 0 6500 0.0005 4.2 2117.95 0
- - 1867.95 0 6750 0.001 10 1867.95 0
- - 1617.95 0 7000 0.0025 - 1617.95 0
- - 1367.95 0 7250 0.0025 1.1 1367.95 0
0.1115 - 1117.95 0 7500 0.003 1.9 1117.95 0
- - 867.95 0 7750 0.005 134.6 867.95 0
2040 A. JALAN ET AL.

Table A1c. Bitcoin options, maturity 28 February 2020, spot price $8617.95, 27/01/2020
Calls Puts
Last Vol diff dummy Strike Last Vol diff dummy
0.459 - 3617.95 0 5000 0.0015 - 3617.95 0
0.3945 - 3117.95 0 5500 0.002 - 3117.95 0
0.352 - 2617.95 0 6000 0.003 1.1 2617.95 0
0.256 - 2117.95 0 6500 0.006 58.1 2117.95 0
0.1575 - 1617.95 0 7000 0.0105 225.1 1617.95 0
0.1345 - 1117.95 0 7500 0.015 46.5 1117.95 0
0.108 26 617.95 0 8000 0.0275 7.6 617.95 0
0.079 3.5 117.95 0 8500 0.0535 32.2 117.95 0
0.055 2.6 −382.05 1 9000 0.085 3.5 −382.05 1
0.0325 9.1 −882.05 1 9500 0.137 - −882.05 1
0.0225 96.4 −1382.05 1 10,000 0.1555 - −1382.05 1
0.0145 26.1 −1882.05 1 10,500 - - −1882.05 0
0.011 41 −2382.05 1 11,000 - - −2382.05 0
0.008 37.9 −2882.05 1 11,500 - - −2882.05 0
0.006 0.5 −3382.05 1 12,000 - - −3382.05 0
0.004 1 −3882.05 1 12,500 - - −3882.05 0
0.004 34.1 −4382.05 1 13,000 - - −4382.05 0

Table A1d. Bitcoin options, maturity 27 March 2020, spot price $8617.95, 27/01/2020
Calls Puts
Last Vol diff dummy Strike Last Vol diff dummy
0.562 - 4617.95 0 4000 0.0015 4.1 4617.95 0
0.518 - 4117.95 0 4500 0.0025 - 4117.95 0
0.4545 - 3617.95 0 5000 0.004 6.1 3617.95 0
- - 3117.95 0 5500 0.0055 66.2 3117.95 0
0.34 - 2617.95 0 6000 0.0085 24.5 2617.95 0
- - 2117.95 0 6500 0.015 57.1 2117.95 0
0.229 0.3 1617.95 0 7000 0.024 242.4 1617.95 0
- - 1117.95 0 7500 0.036 87.6 1117.95 0
0.144 10.8 617.95 0 8000 0.055 76.6 617.95 0
0.1165 13.4 117.95 0 8500 0.1005 - 117.95 0
0.0885 30.4 −382.05 1 9000 0.115 11.5 −382.05 1
0.0545 48.3 −1382.05 1 10,000 0.191 4.4 −1382.05 1
0.0345 21.8 −2382.05 1 11,000 - - −2382.05 0
0.022 28.7 −3382.05 1 12,000 0.3565 - −3382.05 1
0.0135 147.2 −4382.05 1 13,000 - - −4382.05 0
0.01 138.7 −5382.05 1 14,000 0.64 - −5382.05 1
0.009 0.2 −6382.05 1 15,000 - - −6382.05 0
0.0075 34.6 −7382.05 1 16,000 0.95 - −7382.05 1
0.004 2 −9382.05 1 18,000 1.23 - −9382.05 1
0.004 8 −11,382.1 1 20,000 2.035 - −11,382.1 1
0.003 - −13,382.1 1 22,000 1.545 - −13,382.1 1
0.0015 - −15,382.1 1 24,000 - - −15,382.1 0
0.0015 98 −17,382.1 1 26,000 - - −17,382.1 0
0.002 70.5 −19,382.1 1 28,000 - - −19,382.1 0
0.001 - −21,382.1 1 30,000 - - −21,382.1 0
0.001 - −23,382.1 1 32,000 - - −23,382.1 0
0.001 - −25,382.1 1 34,000 - - −25,382.1 0
0.001 - −27,382.1 1 36,000 - - −27,382.1 0
0.0005 - −31,382.1 1 40,000 3.41 - −31,382.1 1

Table A1e. Bitcoin options, maturity 26 June 2020, spot price $8617.95, 27/01/2020
Calls Puts
Last Vol diff dummy Strike Last Vol diff dummy
0.68 - 5617.95 0 3000 0.003 0.2 5617.95 0
0.589 - 4617.95 0 4000 0.008 7.8 4617.95 0
- - 3617.95 0 5000 0.016 5 3617.95 0
0.377 - 2617.95 0 6000 0.0405 - 2617.95 0
0.273 - 1617.95 0 7000 0.067 4.5 1617.95 0
0.2155 0.5 617.95 0 8000 0.1275 - 617.95 0
0.172 2.1 −382.05 1 9000 0.169 2.2 −382.05 1
0.1325 8.2 −1382.05 1 10,000 0.252 1 −1382.05 1
0.08 0.2 −3382.05 1 12,000 0.4395 - −3382.05 1
0.0525 - −5382.05 1 14,000 0.619 - −5382.05 1
(Continued)
 APPLIED ECONOMICS 2041

Table A1e. (Continued).

Calls Puts
Last Vol diff dummy Strike Last Vol diff dummy
0.038 1.1 −7382.05 1 16,000 0.89 - −7382.05 1
0.028 8.4 −9382.05 1 18,000 1.35 - −9382.05 1
0.0205 9.2 −11,382.1 1 20,000 1.85 - −11,382.1 1
0.016 3.2 −13,382.1 1 22,000 - - −13,382.1 0
0.0125 59.6 −15,382.1 1 24,000 - - −15,382.1 0
0.0105 57 −17,382.1 1 26,000 - - −17,382.1 0
0.009 37 −19,382.1 1 28,000 - - −19,382.1 0
0.0085 0.6 −21,382.1 1 30,000 - - −21,382.1 0
0.009 8.3 −23,382.1 1 32,000 - - −23,382.1 0

Table A1f. Bitcoin options, maturity 25 September 2020, spot price $8617.95, 27/01/2020
Calls Puts
Last Vol diff dummy Strike Last Vol diff dummy
0.567 - 4617.95 0 4000 0.0125 46 4617.95 0
- - 3617.95 0 5000 0.028 116.5 3617.95 0
0.425 - 2617.95 0 6000 0.068 - 2617.95 0
0.315 - 1617.95 0 7000 0.115 - 1617.95 0
0.281 0.5 617.95 0 8000 0.155 2.2 617.95 0
0.228 - −382.05 1 9000 0.235 - −382.05 1
0.194 0.3 −1382.05 1 10,000 0.32 - −1382.05 1
0.159 - −2382.05 1 11,000 0.3903 - −2382.05 1
0.14 0.1 −3382.05 1 12,000 0.4955 - −3382.05 1
0.1055 1.1 −5382.05 1 14,000 0.695 - −5382.05 1
0.0805 - −7382.05 1 16,000 0.88 - −7382.05 1
0.0645 - −9382.05 1 18,000 1.02 - −9382.05 1
0.052 0.5 −11,382.1 1 20,000 1.21 - −11,382.1 1
0.0355 13.8 −15,382.1 1 24,000 - - −15,382.1 0
0.026 25 −19,382.1 1 28,000 - - −19,382.1 0
0.0205 45.5 −23,382.1 1 32,000 - - −23,382.1 0
a dummy variable flags with a value of zero if the difference is greater than the last price of the option.