Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/287683 
Year of Publication: 
2021
Citation: 
[Journal:] Digital Finance [ISSN:] 2524-6186 [Volume:] 3 [Issue:] 3-4 [Publisher:] Springer International Publishing [Place:] Cham [Year:] 2021 [Pages:] 273-298
Publisher: 
Springer International Publishing, Cham
Abstract: 
By computing a volatility index (CVX) from cryptocurrency option prices, we analyze this market's expectation of future volatility. Our method addresses the challenging liquidity environment of this young asset class and allows us to extract stable market implied volatilities. Two alternative methods are considered to compute volatilities from granular intra-day cryptocurrency options data, which spans over the COVID-19 pandemic period. CVX data therefore capture 'normal' market dynamics as well as distress and recovery periods. The methods yield two cointegrated index series, where the corresponding error correction model can be used as an indicator for market implied tail-risk. Comparing our CVX to existing volatility benchmarks for traditional asset classes, such as VIX (equity) or GVX (gold), confirms that cryptocurrency volatility dynamics are often disconnected from traditional markets, yet, share common shocks.
Subjects: 
Cryptocurrency
Blockchain
Bitcoin
Volatility
Derivatives
Options
Liquidity
JEL: 
C5
F31
G1
G2
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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