Entropy methods for volatility skew construction of digital assets without an options market

Abstract

The crypto market has grown substantially since the introduction of Bitcoin. For a number of cryptocoins, specifically Bitcoin and Ethereum, derivatives are traded on centralised exchanges such as CME and Deribit. However, as the derivatives market is still quite thin or non-existent for a number of digital assets there is room to address the question of how to construct a volatility skew when there are no options. In this paper we apply entropy methods to construct volatility skews for a number of cryptocoins for which options are not traded.