How Is the 'Risk-Free Rate' Assumption in Black-Scholes Adapted for Crypto Options? ▴ Learn

How Is the ‘Risk-Free Rate’ Assumption in Black-Scholes Adapted for Crypto Options?

The risk-free rate assumption is adapted by using a proxy for the crypto market, such as the interest rate on stablecoin lending or a short-term Treasury rate, though the latter is less ideal. The chosen rate reflects the opportunity cost of capital.

Due to the lack of a true crypto risk-free rate, this input introduces modeling uncertainty.

What Is the Primary Difference in Assumptions between the Black-Scholes and the Bjerksund-Stensland Models?

What Are the Main Limitations of the Original Black-Scholes Model in the Crypto Context?

How Is the Black-Scholes Model Adapted for Use in Cryptocurrency Options?

Explain the Concept of “Not Your Keys, Not Your Coin.”