Pricing Power Perpetual Futures
7 Pages Posted: 28 Apr 2023 Last revised: 31 Jul 2023
Date Written: April 18, 2023
This study discusses pricing of power perpetual futures where it expands on the existing framework that is based on deterministic volatility. Perpetual futures have been initially suggested by Shiller (1993) to help create derivatives markets in illiquid assets. Whereas they failed to gain traction in traditional asset markets, perpetual fu- tures have been heavily used in crypto trading where they are the main derivatives instruments. Power perpetual futures have been recently introduced as a leveraged version of perpetual futures with a more asymmetric payoff structure. Traditionally people have assumed deterministic volatility in its pricing, and in this paper we intro- duce power perpetual futures pricing with stochastic volatility.
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