How Deribit Calculates and Smooths the DVOL Implied Volatility Index
Summary
The document explains DVOL, a forward-looking measure of annualized 30-day Bitcoin implied volatility, and how Deribit derives it from option prices. It describes selecting expiries around the 30-day horizon, estimating prices from order book depth, and using recent trades or mark prices when spreads are too wide. Options with very low delta and certain in-the-money contracts are excluded; a variance-swap approach then combines strike contributions and interpolates between expiries.
The index is recalculated frequently and smoothed with an exponential moving average. The article gives implementation details such as depth-volume rules, spread thresholds, synthetic forward estimation, and fallback windows, along with a rough conversion from annualized volatility to an expected daily move. It also notes that parameters may change. DVOL reflects option-implied expectations rather than guaranteed future movement, and the described index depends on Deribit market data and its stated calculation settings.
Key ideas
- DVOL estimates annualized Bitcoin volatility over a forward-looking 30-day horizon from options across nearby expiries.
- Order book depth prices are used when spreads are acceptable, with trade and mark prices serving as fallbacks.
- The calculation filters selected strikes and uses a variance-swap method before interpolating between expiries.
- An exponential moving average smooths the rapidly recalculated raw index.
- The index is an implied expectation and its calculation parameters may change.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.