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This study seeks to elucidate the volatility dynamics of Bitcoin and Copper options, contrasting a digital asset with a tangible commodity. It leverages the BSM model in tandem with the Newton method and further dissects through the lens of 'Greeks'. It is revealed that the Bitcoin option's delta is nearing 1, while Copper manifests larger negative theta values and elevated rho values. The findings of this paper uncover a pronounced "smile" pattern in Bitcoin, highlighting speculative tendencies. Conversely, Copper's volatility is more in harmony with tangible economic indicators. The analysis consistently demonstrates Bitcoin's heightened anticipation of price fluctuations, underscoring its speculative nature. Conversely, Copper, with its distinctive skew and variable delta and vega values, unveils its susceptibility to real-world economic shifts. Hence, for portfolio diversification strategies, investors might contemplate juxtaposing Bitcoin's speculative allure with Copper's tangible economic grounding. This paper concludes by summarizing the insights gleaned and their prospective implications for future investment strategies.
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Chai et al. (2024) studied this question.
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