Name of Quantlet: BitcoinOptions

Published in: Pricing Kernels and Risk Premia implied in Bitcoin Options

Description: Bitcoin Pricing Kernels are inferred using a novel data set from Deribit, one of the largest Bitcoin derivatives exchanges. The Pricing Kernels improve the understanding of investor sentiment and allow arbitrage-free pricing of various instruments. Bootstrapped confidence bands are estimated in order to validate the results. Investors are heterogeneous in their risk profiles. The empirical Pricing Kernels are U-shaped for short-dated instruments. These are rarely traded at-the-money and are mainly used for speculation. In case of long-dated instruments, empirical Pricing Kernels are generally decreasing, although increasing in the right tail. Their traders are risk averse, yet hedging their risk of being priced out of a dynamic market.

Keywords: Bitcoin, Deribit, pricing kernel, risk aversion, speculation

Author: Julian Winkel, Cathy Chen

Submitted: 2022.08.01