Title: The role of investor sentiment in the valuation of bitcoin and bitcoin derivatives

Authors: Rebecca Abraham

Addresses: Huizenga College of Business, Nova Southeastern University, 3301 College Ave., Fort Lauderdale, FL, USA

Abstract: Bitcoin is the currency of the blockchain, which promises cost reductions for businesses. This paper develops models to value bitcoin, bitcoin futures, and bitcoin options. It provides the theoretical basis for bitcoin pricing. Optimal bitcoin prices are derived at the intersection of an aberrancy utility function, a hyperbolic cosine utility function, and a Bessel utility function with price distributions. Rational investors value bitcoin on the basis of blockchain applications, while irrational investors' value bitcoin based on personal recommendations.

Keywords: asymmetric Laplace; investor sentiment; Kullback-Leibler; bitcoin; bitcoin futures; Levy; Khintchine; bitcoin options.

DOI: 10.1504/IJFMD.2020.109173

International Journal of Financial Markets and Derivatives, 2020 Vol.7 No.3, pp.203 - 223

Received: 19 Mar 2019
Accepted: 09 Oct 2019

Published online: 17 Aug 2020 *

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