Challenges in Pricing Crypto Quanto Futures and Perpetuals

Summary

The document raises two modeling issues when applying stochastic quanto pricing formulas to crypto futures and perpetual swaps. First, it questions what domestic discount rate to use when the contract is settled in bitcoin, given the absence of a conventional risk-free rate for that currency. Second, it notes that frequent price jumps may make a lognormal price model a poor fit for crypto markets.

It does not propose a pricing method, derive an alternative model, or provide empirical tests. The material is best read as a statement of open modeling questions rather than a complete pricing analysis. Any application of standard quanto formulas would need to address the choice of discounting framework and the impact of jumps; the document leaves both issues unresolved.

Key ideas

• Pricing crypto quanto contracts requires a choice of discount rate for the settlement currency.
• The document questions how to discount cash flows in bitcoin without a conventional risk-free rate.
• Frequent price jumps may undermine the lognormal dynamics assumed by standard pricing formulas.
• The text identifies modeling concerns but does not resolve them or compare alternative approaches.

Tags

# pricing crypto quanto swap and perpetual


# pricing crypto quanto swap and perpetual












https://www.bitmex.com/app/contract/ETHUSD https://www.bitmex.com/app/contract/ETHUSDM21

How do you apply stochastic quanto pricing formulas to quanto crypto futures and perpetuals? I can see couple limitations:

- There is no risk free rate in crypto currencies (BTC) to do domestic currency discounting in BTC

- with so many price jumps they are not following lognormal price dynamics

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.