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Market Consistent Valuation for Bitcoin Options With Long Memory in Conditional Volatility and Conditional Non‐Normality

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  • Tak Kuen Siu

Abstract

This paper investigates the economic consequences for Bitcoin options' prices of a long memory in conditional volatility and conditional non‐normality of Bitcoin returns. The arbitrage‐free prices of Bitcoin options are determined by market consistent valuation and the conditional Esscher transform. Monte Carlo estimates for option prices from estimated models based on Bitcoin returns data are provided. Explanations for the results from an economic perspective are provided. Economic insights and implications of the results for the nature of cryptocurrencies, their risk evaluation, and the hedging of Bitcoin's derivatives are explored.

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  • Tak Kuen Siu, 2025. "Market Consistent Valuation for Bitcoin Options With Long Memory in Conditional Volatility and Conditional Non‐Normality," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 45(8), pages 917-945, August.
    • Handle: RePEc:wly:jfutmk:v:45:y:2025:i:8:p:917-945
    DOI: 10.1002/fut.22597
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