How Does the Correlation between Crypto Assets Affect the DVOL Calculation?

DVOL is typically calculated for a single asset (like BTC or ETH). However, the high correlation between major crypto assets means that if the IV of one asset spikes, the IV of the other is likely to spike as well.

While DVOL's formula doesn't explicitly include correlation, the market's pricing of options is influenced by systemic risk, which is often tied to high correlation. A broad market panic (high correlation) will drive all DVOLs higher.