How Can the Pricing Model for a Cryptocurrency Option Be Compromised by the Threat of a 51% Attack?

Standard option pricing models, like Black-Scholes, assume market efficiency and a continuous, log-normal distribution of price movements. The threat of a 51% attack introduces a non-standard, discontinuous jump risk ⎊ the possibility of a sudden, massive, and artificial price drop or spike.

This tail risk is not captured by the standard model, leading to mispricing. Traders often use jump-diffusion models or adjust implied volatility (volatility smile/skew) to account for this systemic threat.