{"title":"Crypto quanto and inverse options","authors":"Carol Alexander, Ding Chen, Arben Imeraj","doi":"10.1111/mafi.12410","DOIUrl":null,"url":null,"abstract":"<p>Over 90% of exchange trading on crypto options has always been on the Deribit platform. This centralized crypto exchange only lists inverse products because they do not accept fiat currency. Likewise, other major crypto options platforms only list crypto–stablecoin trading pairs in so-called <i>direct</i> options, which are similar to the standard crypto options listed by the CME except the US dollar is replaced by a stablecoin version. Until now a clear mathematical exposition of these products has been lacking. We discuss the sources of market incompleteness in direct and inverse options and compare their pricing and hedging characteristics. Then we discuss the useful applications of currency protected “quanto” direct and inverse options for fiat-based traders and describe their pricing and hedging characteristics, all in the Black–Scholes setting.</p>","PeriodicalId":49867,"journal":{"name":"Mathematical Finance","volume":null,"pages":null},"PeriodicalIF":1.6000,"publicationDate":"2023-07-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/mafi.12410","citationCount":"1","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Mathematical Finance","FirstCategoryId":"96","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/mafi.12410","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 1
Abstract
Over 90% of exchange trading on crypto options has always been on the Deribit platform. This centralized crypto exchange only lists inverse products because they do not accept fiat currency. Likewise, other major crypto options platforms only list crypto–stablecoin trading pairs in so-called direct options, which are similar to the standard crypto options listed by the CME except the US dollar is replaced by a stablecoin version. Until now a clear mathematical exposition of these products has been lacking. We discuss the sources of market incompleteness in direct and inverse options and compare their pricing and hedging characteristics. Then we discuss the useful applications of currency protected “quanto” direct and inverse options for fiat-based traders and describe their pricing and hedging characteristics, all in the Black–Scholes setting.
期刊介绍：
Mathematical Finance seeks to publish original research articles focused on the development and application of novel mathematical and statistical methods for the analysis of financial problems.
The journal welcomes contributions on new statistical methods for the analysis of financial problems. Empirical results will be appropriate to the extent that they illustrate a statistical technique, validate a model or provide insight into a financial problem. Papers whose main contribution rests on empirical results derived with standard approaches will not be considered.
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