Perpetual Futures in NFTs

Abstract

This study discusses a pricing framework for perpetual futures in collection-based Non-Fungible Tokens (NFTs) which represent unique digital assets in a low liquidity and high price volatility environment. The collection could be viewed as the broad family to which an NFT belongs and the NFTs within the collection are interconnected where they exhibit systematic co-movements. For the perpetual futures pricing we leverage that collection-based NFTs have substantial exposure to the collection they belong to. We discuss both pricing of perpetual and power perpetual futures where we discuss two different model approaches. One approach uses the conventional pricing methodology on NFT indices and another approach leverages on defining the closed-form NFT price process.