Cryptocurrencies might be called digital money, but they don't act like traditional cash. Instead, they're more like volatile assets. With over 2, 500 cryptocurrencies out there, each with its own wild price swings, investors are looking for ways to calm things down. One smart way is to mix and match crypto assets to form a portfolio that's less bumpy. This can be done using some mathematical tricks to reduce the ups and downs. Interestingly, these optimized crypto portfolios can even beat the S&P 500, a major stock market index.

But what about crypto options? These are like bets on whether a crypto's price will go up or down. Right now, there aren't many traded crypto options. Why? Because there's no good way to figure out their fair price. Researchers are working on this, though. They've come up with a model that uses a dynamic pricing method for crypto assets. This model was tested and seems reliable. To get the price of a crypto option, they transform this real-world model into a special mathematical world called the equivalent martingale measure using something called the Esscher transform.

Since there aren't many crypto options to compare with, it's hard to check if the model's prices are right. But if crypto options become more common, they should match the model's prices, accounting for some market hiccups and design details.

Crypto Investing: A Portfolio Shake-Up

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