Hedging cryptocurrency options.

IF 0.7 4区 经济学 Q4 BUSINESS, FINANCE
Review of Derivatives Research Pub Date : 2023-01-01 Epub Date: 2023-02-10 DOI:10.1007/s11147-023-09194-6
Jovanka Lili Matic, Natalie Packham, Wolfgang Karl Härdle
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引用次数: 0

Abstract

The cryptocurrency market is volatile, non-stationary and non-continuous. Together with liquid derivatives markets, this poses a unique opportunity to study risk management, especially the hedging of options, in a turbulent market. We study the hedge behaviour and effectiveness for the class of affine jump diffusion models and infinite activity Lévy processes. First, market data is calibrated to stochastic volatility inspired-implied volatility surfaces to price options. To cover a wide range of market dynamics, we generate Monte Carlo price paths using an stochastic volatility with correlated jumps model, a close-to-actual-market GARCH-filtered kernel density estimation as well as a historical backtest. In all three settings, options are dynamically hedged with Delta, Delta-Gamma, Delta-Vega and Minimum Variance strategies. Including a wide range of market models allows to understand the trade-off in the hedge performance between complete, but overly parsimonious models, and more complex, but incomplete models. The calibration results reveal a strong indication for stochastic volatility, low jump frequency and evidence of infinite activity. Short-dated options are less sensitive to volatility or Gamma hedges. For longer-dated options, tail risk is consistently reduced by multiple-instrument hedges, in particular by employing complete market models with stochastic volatility.

Abstract Image

对冲加密货币期权
加密货币市场具有波动性、非平稳性和非连续性。再加上流动性强的衍生品市场,这为在动荡的市场中研究风险管理(尤其是期权对冲)提供了一个独特的机会。研究了一类仿射跳跃扩散模型和无穷活度lsamvy过程的对冲行为和有效性。首先,将市场数据校准为随机波动率,启发隐含波动率面到价格期权。为了涵盖广泛的市场动态,我们使用具有相关跳跃模型的随机波动,接近实际市场的garch过滤核密度估计以及历史回测来生成蒙特卡罗价格路径。在所有三种设置中,期权都可以动态对冲Delta, Delta- gamma, Delta- vega和最小方差策略。包括广泛的市场模型,可以理解在完整但过于简洁的模型和更复杂但不完整的模型之间的对冲表现的权衡。校准结果显示了随机波动的强烈指示,低跳频和无限活动的证据。短期期权对波动性或Gamma套期保值不那么敏感。对于长期期权,通过多工具套期保值,特别是采用具有随机波动率的完整市场模型,尾部风险持续降低。
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来源期刊
CiteScore
1.40
自引率
0.00%
发文量
8
期刊介绍: The proliferation of derivative assets during the past two decades is unprecedented. With this growth in derivatives comes the need for financial institutions, institutional investors, and corporations to use sophisticated quantitative techniques to take full advantage of the spectrum of these new financial instruments. Academic research has significantly contributed to our understanding of derivative assets and markets. The growth of derivative asset markets has been accompanied by a commensurate growth in the volume of scientific research. The Review of Derivatives Research provides an international forum for researchers involved in the general areas of derivative assets. The Review publishes high-quality articles dealing with the pricing and hedging of derivative assets on any underlying asset (commodity, interest rate, currency, equity, real estate, traded or non-traded, etc.). Specific topics include but are not limited to: econometric analyses of derivative markets (efficiency, anomalies, performance, etc.) analysis of swap markets market microstructure and volatility issues regulatory and taxation issues credit risk new areas of applications such as corporate finance (capital budgeting, debt innovations), international trade (tariffs and quotas), banking and insurance (embedded options, asset-liability management) risk-sharing issues and the design of optimal derivative securities risk management, management and control valuation and analysis of the options embedded in capital projects valuation and hedging of exotic options new areas for further development (i.e. natural resources, environmental economics. The Review has a double-blind refereeing process. In contrast to the delays in the decision making and publication processes of many current journals, the Review will provide authors with an initial decision within nine weeks of receipt of the manuscript and a goal of publication within six months after acceptance. Finally, a section of the journal is available for rapid publication on `hot'' issues in the market, small technical pieces, and timely essays related to pending legislation and policy. Officially cited as: Rev Deriv Res
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