Xeon Protocol
  • 🊐Welcome to Xeon
    • Introduction
    • Challenges
    • Mission
    • Ecosystem
    • Products
  • âœĻOTC Tools
    • Features
    • Equity Swaps
    • Call Options
    • Put Options
  • ðŸ’ŧHow It Works
    • Use Cases
    • Quick Guide
    • What Happened
    • P/L Calculations
  • 🔓Staking NEON
    • How to Stake
    • Assignments
    • Rewards
  • ðŸŒūReal Yield
    • Protocol Income
    • Yield Farming
    • Farming Pools
    • Native Hedge Liquidity
    • Native Loan Collateral
  • ðŸ‘Ļ‍ðŸŒūEARN WITH US
    • How to Earn
    • Hedge Mining
  • ☄ïļFees
    • Model
    • Cashier Fees
    • Settlement Fees
  • ⚡Costing and Valuation
    • Highlights
    • Value in Pair Currency
    • Underlying Value
  • ðŸ’ļERC20 Hedging
    • Traditional Hedging
    • Blockchain Hedging
    • Neon Hedging Model
    • Traditional Costing Models
      • Binomial VS Monte Carlo
      • Binomial Model
      • Costing Example
      • Conclusion
    • Neon Costing Model
    • Writing Approach
    • Settlement
  • ðŸŠķERC20 Lending
    • Crypto Lending
    • Neon Lending Model
    • Neon Valuation Model
    • Writing Approach
    • Settlement
  • ⚙ïļMechanics
    • ERC20 Vault Model
    • ERC20 Deposit/Withdraw
    • getPairAddress
    • Underlying Value
    • Write
    • Buy
    • Topup
    • Zap
    • Settlement
    • Mining
    • LockedInUse
    • 🧑‍🚀Development
      • Page 1
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  1. ERC20 Hedging

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 ERC20 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.

PreviousNeon Hedging ModelNextBinomial VS Monte Carlo

Last updated 1 year ago

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