Traditional Costing Models

Pricing choice

In normal hedging, the pricing of options is typically done using various mathematical models. In the case of ERC20 tokens traded on DEXes, these tokens are capable of moving 100% in one day, the implied volatility can be quite high. Binomial or Monte Carlo are the best simulation methods. These models can handle variable volatility more effectively.

The Black-Scholes model assumes constant volatility, which might not be suitable for highly volatile tokens.

To calculate the call option cost using these models, you would typically consider the following inputs:

1. Underlying Token Price: The current price of the ERC-20 token.

2. Strike Price: The agreed-upon price at which the call option can be exercised.

3. Time to Expiration: The duration of the option, which is 5 days in this case.

4. Risk-Free Interest Rate: The risk-free interest rate during the option duration.

5. Implied Volatility: The expected volatility of the token's price over the option duration.

Using these inputs, we can run simulations or calculations based on the chosen pricing model to determine the call option cost or premium.

Comparison follows.