On the Timing Option in a Futures Contract
17 Pages Posted: 19 Mar 2007
Abstract
The timing option embedded in a futures contract allows the short position to decide when to deliver the underlying asset during the last month of the contract period. In this paper we derive, within a very general incomplete market framework, an explicit model independent formula for the futures price process in the presence of a timing option. We also provide a characterization of the optimal delivery strategy, and we analyze some concrete examples.
Suggested Citation: Suggested Citation
Tomas Bjork
Stockholm School of Economics - Swedish House of Finance ( email )
Drottninggatan 98
111 60 Stockholm
Sweden
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On the Timing Option in a Futures Contract
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