This project is an experiment to see how much it would cost to buy an insurance policy that lets you buy Bitcoin at its lowest price of the year. I used a discrete lookback call option model combined with a Monte Carlo engine to find the answer.
Bitcoin is famous for its massive "dips." I wanted to build a tool that uses real historical volatility to calculate the fair price of a "perfect entry" (buying at the absolute bottom).
Real-time data: Fetch the latest market price via yfinance.
Risk-metrics: Calculate logarithmic returns, equity curves, and historical risk (drawdown).
Monte Carlo engine: Vectorized simulation of 10,000 paths for computational efficiency. The model assumes daily monitoring (365 steps per year)
Professional visualization: The script generates 3 charts showing the historical growth, the drawdown and price projections.
Install: pip install yfinance numpy matplotlib
Bitcoin's annual volatility is significantly higher than typical assets like ETFs or stocks; therefore, it is natural for the price of a lookback option to explode compared to those assets.
My findings show that the option price usually stays between 30% and 35% of the spot price. It is also remarkable that the maximum drawdown can be intimidating: even within a one-year period, it can reach -50%. This proves that high volatility is a double-edged sword for the investor.