In a Crypto Options Contract, What Specific Data Would an Oracle Typically Provide?
An oracle primarily provides the underlying asset's real-time or near real-time price feed. For a Bitcoin call option, the oracle feeds the BTC/USD price to the contract.
This price is crucial for determining the option's intrinsic value, calculating margin requirements, and executing settlement at expiry. It ensures the contract settles based on verifiable, current market conditions.
Glossar
Crypto Options
Valuation ⎊ Crypto options, representing rights ⎊ not obligations ⎊ to buy or sell a cryptocurrency at a predetermined price before an expiration date, derive valuation from underlying asset price, time to expiry, volatility, and prevailing risk-free interest rates; models like Black-Scholes, adapted for crypto’s unique characteristics, are frequently employed, though parameter estimation presents challenges due to nascent market data and potential for manipulation.
Spot Price Oracle
Calibration ⎊ A Spot Price Oracle functions as a critical component within cryptocurrency derivatives markets, establishing a reference point for valuation and settlement of contracts.