Altcoin Volatility Surface Methodology

Understanding volatility is essential to success for crypto traders and investors, especially in cryptocurrency markets, which are known for high volatility, distinctive trading behaviors, and low liquidity. However traditional methods for estimating volatility are often flawed regarding altcoins. They rely on tweaking Bitcoin or Ethereum volatility data to fit altcoins, which results in a process riddled with instability and noise.

Amberdata is proud to release our Altcoin Volatility Surface Methodology. With a robust approach verified by industry leaders, we have developed a revolutionary approach that delivers more reliable, unbiased, and consistent volatility estimates for altcoins.

The Problem with Traditional Methods

The standard approach to altcoin volatility is straightforward. Many other providers take BTC or ETH volatility, analyze realized moments like skew, kurtosis, and volatility-of-volatility, and scale it up or down based on the altcoin's data.

However, realized moments are extremely sensitive to the timeframes and datasets you use. This can lead to wild fluctuations in the output, making the results anything but consistent. And when you're dealing with the fourth moment—kurtosis—it gets even trickier. Fat tails (rare, extreme market events) are difficult to model accurately because they happen so infrequently.

The result is an unreliable volatility surfaces built on these shaky foundations,, making this approach far too subjective for robust market analysis.

Amberdata’s Altcoin Equity Basket Bootstrap

Amberdata’s methodology solves the problems of traditional approaches and redefines what’s possible for alt-coin analytics.

Greater Stability: By relying on equity market data, the Equity Basket Bootstrap avoids the noise and fluctuations that plague realized moments in crypto markets.

Unmatched Robustness: Cointegration ensures the methodology is rooted in mathematically sound relationships, while GARCH scaling adds precision to volatility estimates.

Industry Differentiation: This unique approach is difficult to replicate, providing Amberdata customers with a truly differentiated and reliable view of Alt-coin volatility surfaces.

Features

Altcoin SVI

Retrieve volatility surfaces in SVI parameter form for continuous strike selection for both 7-days to expiration and 30-days to expiration (DTE).

Altcoin Statistics Table

Access comprehensive Altcoin data, including delta surfaces, GARCH estimates, and curated basket details.

Altcoin Strike Marks

Generate synthetic option chains with Mark IV, bid/ask spreads, and synthetic futures prices.

Use Cases

Market Makers

Streamline arbitrage-free volatility surface calculations and manage unique risks with 5- 5-minute granularity for more precise pricing and risk management.

DeFi Protocols

Integrate robust volatility modeling to optimize liquidity pools and ensure stable pricing mechanisms using advanced, liquidity-adjusted SVI calibration techniques.

Exchanges

Enhance pricing accuracy and mitigate risk by incorporating SVI TrueLine’s dynamic volatility surface calibration to support the volatility profiles of alt-coin options.

OTC Desks 

Leverage historical backfills and fine-tuned volatility surfaces to efficiently price and hedge large, bespoke transactions in the volatile crypto markets.

Interested in more? Learn about our SVI TrueLine Methodology here.

Don't forget to join Greg Magadini, Director of Derivatives at Amberdata, Euan Sinclair, Samneet Chepal, and more on Thursday, December 5th at 1:00 p.m. ET/ Noon CT for our webinar: Crypto Volatility Trading and Bootstrapping the Meme Surface

What You’ll Learn:
- Expert perspectives on valuation processes and market trends
- How DeFi platforms like Derive are advancing unique options trading
- Strategies for trading options in the dynamic memecoin space
- Key insights into calibrating volatility surfaces for crypto options

Register for the Webinar Here!