  Cryptocurrencies, especially Bitcoin (BTC), which comprise a new digital
asset class, have drawn extraordinary worldwide attention. The characteristics
of the cryptocurrency/BTC include a high level of speculation, extreme
volatility and price discontinuity. We propose a pricing mechanism based on a
stochastic volatility with a correlated jump (SVCJ) model and compare it to a
flexible co-jump model by Bandi and Ren\`o (2016). The estimation results of
both models confirm the impact of jumps and co-jumps on options obtained via
simulation and an analysis of the implied volatility curve. We show that a
sizeable proportion of price jumps are significantly and contemporaneously
anti-correlated with jumps in volatility. Our study comprises pioneering
research on pricing BTC options. We show how the proposed pricing mechanism
underlines the importance of jumps in cryptocurrency markets.
