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Bitcoin Options Market Efficiency

Student: Permyakov Philipp

Supervisor: Vladimir Sokolov

Faculty: International College of Economics and Finance

Educational Programme: Double degree programme in Economics of the NRU HSE and the University of London (Bachelor)

Final Grade: 10

Year of Graduation: 2020

This paper examines the efficiency of Bitcoin options market by analyzing the dynamics of implied volatility after shocks in Bitcoin price. If the market is informationally efficient, the adjustment to new information contained in a return jump should be immediate. Using transactional data from Deribit options exchange, it is found that positive price shocks lead to delayed and gradual movements of Black-Scholes implied volatility. In turn, negative Bitcoin price jumps are accompanied by immediate convergence of implied volatility to its new equilibrium level. No ``leverage effect" is found for Bitcoin options market: implied volatility increases regardless of the direction of the price jump. Finally, it is shown that the relaxation of Black-Scholes model assumptions does not affect the behavior of option-implied volatility after Bitcoin return shocks.

Full text (added June 11, 2020)

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