On the Timing Option in a Futures Contract
AbstractThe 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.
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 619.
Length: 20 pages
Date of creation: 09 Nov 2005
Date of revision:
Note: To appear in Mathematical Finance
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Futures contract; timing option; optimal stopping;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-24 (All new papers)
- NEP-FIN-2006-01-24 (Finance)
- NEP-FMK-2006-01-24 (Financial Markets)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Boyle, Phelim P, 1989. " The Quality Option and Timing Option in Futures Contracts," Journal of Finance, American Finance Association, vol. 44(1), pages 101-13, March.
- Gay, Gerald D. & Manaster, Steven, 1986. "Implicit delivery options and optimal delivery strategies for financial futures contracts," Journal of Financial Economics, Elsevier, vol. 16(1), pages 41-72, May.
- Gay, Gerald D. & Manaster, Steven, 1984. "The quality option implicit in futures contracts," Journal of Financial Economics, Elsevier, vol. 13(3), pages 353-370, September.
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