Stochastic volatility dynamic hedging for the Inverse BTC option

Deribit exchange offers about 90\% open interest in the recent cryptocurrency options market. The dominating type of options listed in Deribit is the inverse BTC option, which is settled in BTC and thus allows professional traders to avoid frequent convert between cryptocurrency and fiat currency. However, research on fair pricing and hedging for the inverse BTC option still needs to be completed. In this paper, we conduct dynamic hedging of the inverse BTC options under the Black-Scholes model and the Heston stochastic volatility (SV) model. In addition, we provide novel formulae of Delta, Gamma, and Vega under the SV model. Our results show that adding the SV feature does enhance performances on pricing and hedging inverse BTC options