Quant Research into Power Perps Pricing

This research problem falls in the broader category of pricing and market making power perps better.

  • Better model implied volatility on shorter timeframes (1min -1day timeframe) based on realized volatility.
  • Take into account upside/downside volatility asymmetry.
  • Factor in volatility skew into power perps pricing.

Tasks

  1. Data collection
  2. Historical Backtests for model selection
  3. Implementing model in production for entropy market-making bot

@wvu18 brought up that he has expertise in this area, and would be interested in leading this research. Will let him scope the problem out more.

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This proposal is pretty complex so I think we should break it down into some lower hanging fruit.
Let’s start with the purely theoretical side of how to price a power perpetual and release some insights on it as a medium article.

Here is the first article for reference:

Here are some questions we would want to answer:

  1. How to price power perpetuals?
  1. What are some other use cases of power perpetuals?
  • Impermanent Loss Hedging
  • Options like exposure
  1. How can I trade power perpetuals?
  • Rebalance strategy

Here is some related research done on usages of power perps:

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