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
Biagini, Francesca and Bjork, Tomas, On the Timing Option in a Futures Contract. Mathematical Finance, Vol. 17, No. 2, pp. 267-283, April 2007, Available at SSRN: https://ssrn.com/abstract=974938 or http://dx.doi.org/10.1111/j.1467-9965.2006.00303.x
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