Download pdf
Volatility Juxtaposition: Deciphering Market Risk Perceptions Between Bitcoin and Copper Options
- 1 D'Amore-McKim School of Business, Northeastern University, Boston,02115, United States
- 2 The School of Management Science and Engineering, Central University of Finance and Economics, Beijing, 102206, Chian
- 3 Polymer, Zhejiang University, Hangzhou, 310058, China
- 4 International Business College, Tianjin Foreign Studies University, Tianjin, 300270, China
* Author to whom correspondence should be addressed.
Abstract
This study seeks to elucidate the volatility dynamics of Bitcoin and Copper options, contrasting a digital asset with a tangible commodity. It leverages the BSM model in tandem with the Newton method and further dissects through the lens of 'Greeks'. It is revealed that the Bitcoin option's delta is nearing 1, while Copper manifests larger negative theta values and elevated rho values. The findings of this paper uncover a pronounced "smile" pattern in Bitcoin, highlighting speculative tendencies. Conversely, Copper's volatility is more in harmony with tangible economic indicators. The analysis consistently demonstrates Bitcoin's heightened anticipation of price fluctuations, underscoring its speculative nature. Conversely, Copper, with its distinctive skew and variable delta and vega values, unveils its susceptibility to real-world economic shifts. Hence, for portfolio diversification strategies, investors might contemplate juxtaposing Bitcoin's speculative allure with Copper's tangible economic grounding. This paper concludes by summarizing the insights gleaned and their prospective implications for future investment strategies.
Keywords
Implied volatility, Bitcoin options, Copper options, Greeks
[1]. Nakamoto, Satoshi, and A. Bitcoin. "A peer-to-peer electronic cash system." Bitcoin.–URL: https://bitcoin. org/bitcoin. pdf 4.2 (2008): 15.
[2]. Markowitz, Harry. "The utility of wealth." Journal of political Economy 60.2 (1952): 151-158.
[3]. Sharpe, William F. "Capital asset prices: A theory of market equilibrium under conditions of risk." The journal of finance 19.3 (1964): 425-442.
[4]. Black, F., & Scholes, M. (1973). The Pricing of Options and Corporate Liabilities. Journal of Political Economy, 81(3), 637–654. doi:10.1086/260062
[5]. Mayhew, S. (1995). Implied Volatility. Financial Analysts Journal, 51(4), 8–20. doi:10.2469/faj.v51.n4.1916
[6]. LAUTERBACH, B., & SCHULTZ, P. (1990). Pricing Warrants: An Empirical Study of the Black-Scholes Model and Its Alternatives. The Journal of Finance, 45(4), 1181–1209. doi:10.1111/j.1540-6261.1990.tb02432.x
[7]. HULL, J., & WHITE, A. (1987). The Pricing of Options on Assets with Stochastic Volatilities. The Journal of Finance, 42(2), 281–300. doi:10.1111/j.1540-6261.1987.tb02568.x
[8]. RUBINSTEIN, M. (1985). Nonparametric Tests of Alternative Option Pricing Models Using All Reported Trades and Quotes on the 30 Most Active CBOE Option Classes from August 23, 1976 through August 31, 1978. The Journal of Finance, 40(2), 455–480. doi:10.1111/j.1540-6261.1985.tb04967.x
[9]. Zulfiqar, Noshaba, and Saqib Gulzar. "Implied volatility estimation of bitcoin options and the stylized facts of option pricing." Financial Innovation 7 (2021): 1-30.
[10]. Rebonato R (2004) Volatility and correlation: the perfect hedger and the fox, 2nd edn. Wiley Online Library, New York. https://doi.org/10.1002/9781118673539
[11]. Manaster S, Koehler G (1982) The calculation of implied variances from the Black Scholes Merton model: a note. J Finance 37:227–230
Cite this article
Chai,F.;Fei,M.;Chai,N.;Zhang,X. (2024). Volatility Juxtaposition: Deciphering Market Risk Perceptions Between Bitcoin and Copper Options . Advances in Economics, Management and Political Sciences,82,246-254.
Data availability
The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.
Disclaimer/Publisher's Note
The statements, opinions and data contained in all publications are solely those of the individual author(s) and contributor(s) and not of EWA Publishing and/or the editor(s). EWA Publishing and/or the editor(s) disclaim responsibility for any injury to people or property resulting from any ideas, methods, instructions or products referred to in the content.
About volume
Volume title: Proceedings of the 2nd International Conference on Financial Technology and Business Analysis
© 2024 by the author(s). Licensee EWA Publishing, Oxford, UK. This article is an open access article distributed under the terms and
conditions of the Creative Commons Attribution (CC BY) license. Authors who
publish this series agree to the following terms:
1. Authors retain copyright and grant the series right of first publication with the work simultaneously licensed under a Creative Commons
Attribution License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this
series.
2. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the series's published
version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial
publication in this series.
3. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and
during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See
Open access policy for details).