The Crypto Investor Fear Gauge and the Bitcoin Variance Risk Premium

19 Pages Posted: 13 May 2019 Last revised: 23 Sep 2019

See all articles by Carol Alexander

Carol Alexander

University of Sussex Business School

Arben Imeraj

Technische Universität München (TUM)

Date Written: May 9, 2019


We acquire a unique dataset of high-frequency traded prices for bitcoin call and put options from the Deribit cryptocurrency derivatives exchange, by 15-minute sampling via the application programming interface. We use these prices to construct a term structure of bitcoin implied volatility indices using a 'geometric' variance swap fair-value formula that is employed by the CBOE for the VIX, an index commonly referred to as the 'investor fear gauge' for the US stock market. However, its emphasis on deep out-of-the-money puts makes it easy to manipulate. Also, this formula is not model-free - in the presence of large price jumps it significantly underestimates the fair-value. And bitcoin prices jump excessively. So we also employ an arithmetic variance swap formula which has floating leg defined by a different type of realised variance, and which is truly model-free. Employing over 3 million option prices, we construct the curve of both geometric and arithmetic bitcoin implied volatility indices with maturities from from one week to three months, sampled every 15 minutes from mid-March to end August 2019. We discuss the features of both indices and the associated bitcoin variance risk premia, with three different regular partitions for realised variance, viz. 15-minutes, hourly and daily.

Keywords: Bitcoin, VXBT, Cryptocurrency, Derivatives, Futures, Implied Volatility, Options, Realised Volatility, Variance Risk Premium, VIX

JEL Classification: C22, C5, E42, F31, G1, G2

Suggested Citation

Alexander, Carol and Imeraj, Arben, The Crypto Investor Fear Gauge and the Bitcoin Variance Risk Premium (May 9, 2019). Available at SSRN: or

Carol Alexander (Contact Author)

University of Sussex Business School ( email )

Falmer, Brighton BN1 9SL
United Kingdom


Arben Imeraj

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, 80333

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