Market attention and Bitcoin price modeling: theory, estimation and option pricing

DOI10.1007/S10203-019-00262-XzbMATH Open1444.91208arXiv1702.00215OpenAlexW2966506330MaRDI QIDQ777928FDOQ777928

Gianna Figà-Talamanca, Marco Patacca, Alessandra Cretarola

Publication date: 8 July 2020

Published in: Decisions in Economics and Finance (Search for Journal in Brave)

Abstract: We endorse the idea, suggested in recent literature, that BitCoin prices are influenced by sentiment and confidence about the underlying technology; as a consequence, an excitement about the BitCoin system may propagate to BitCoin prices causing a Bubble effect, the presence of which is documented in several papers about the cryptocurrency. In this paper we develop a bivariate model in continuous time to describe the price dynamics of one BitCoin as well as the behavior of a second factor affecting the price itself, which we name confidence indicator. The two dynamics are possibly correlated and we also take into account a delay between the confidence indicator and its delivered effect on the BitCoin price. Statistical properties of the suggested model are investigated and its arbitrage-free property is shown. Further, based on risk-neutral evaluation, a quasi-closed formula is derived for European style derivatives on the BitCoin. A short numerical application is finally provided.

Full work available at URL: https://arxiv.org/abs/1702.00215

zbMATH Keywords

maximum likelihood estimationoption pricingstochastic modelsBitcoinmarket attention

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Applications of statistics to actuarial sciences and financial mathematics (62P05) Stochastic models in economics (91B70) Actuarial science and mathematical finance (91G99)

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Cited In (9)

• Does market attention affect bitcoin returns and volatility?
• Detecting bubbles in bitcoin price dynamics via \textit{market exuberance}
• Modelling the bitcoin prices and media attention to bitcoin via the jump-type processes
• Impact of macroeconomic news, regulation and hacking exchange markets on the volatility of bitcoin
• An analysis of price discovery between Bitcoin futures and spot markets
• Bitcoin: jumps, convenience yields, and option prices
• Blockchain and cryptocurrencies: economic and financial research
• Common dynamic factors for cryptocurrencies and multiple pair-trading statistical arbitrages
• Complexity traits and synchrony of cryptocurrencies price dynamics

Uses Software

• FinTS

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