DVOL Futures

The biggest news this week is that Deribit is moving ahead with launching futures on their DVOL Bitcoin volatility index. Like with every new product launch, I am cautiously optimistic, but given that Deribit has ~ 90% market share in cryptocurrency options volume, I think that the product has a great chance of success! If you trade volatility on Deribit, in addition to straddles and strangles you would be able to take outright vol futures positions, or calendar spreads.

The index was launched two years ago, and the exchange did not back-calculate the index to an earlier date.

DVOL index behaves like other volatility indexes, with clusters of spikes amid brief periods of calm. Just like with SPX/VIX there is a negative correlation in returns, 

but raw levels do not show significant correlation.

There is not enough historical data to build a good histogram of DVOL levels; it looks very jagged, uneven. 


Looking at the charts it is hard to tell if log transformation removes the skew ( like it does with VIX ), again the issue is the amount of data.

Mean and median of the index is ~76, so no significant skew in the historical time series. Just like other volatility indexes we make reasonable modelling assumption that if DVOL is above 76 it will trend lower, and if below 76 it will trend higher. Mean-reversion coefficient is found with regression ( in log space ) and values for different starting points are simulated and presented below. Here you go - these are theoretical futures prices for DVOL

Right now, at the time of writing, DVOL is at 50. According to my calculations, 1 month future should trade about 60, and 2 months future about 67. 

The futures are expected to launch on Deribit at the end of this month, so we will see soon enough if my calculations are close. 

Yulia Prokhorova, a russian woman living in Germany has been harassing Ukrainian refugees and posting these videos on her social media accounts. In this video she celebrates indiscriminate rocket strikes that clearly target civilians in a city. Look at her happy face. Look at how much pleasure she gets at the death and suffering of Ukrainian people. This is the essence of what russia wants to bring to Ukraine, this is what we are fighting.

No comments:

Post a Comment

Weekly market report

Wall st delivered a mixed bag of news with VIX, VNKY, and VSTOXX and their underlying markets almost unchanged. VXD - volatility index based...