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On the Timing Option in a Futures Contract

Author

Listed:
  • Björk, Tomas

    () (Dept. of Finance, Stockholm School of Economics)

  • Biagini, Francesca

    (Dipartimento di Matematica, Universita di Bologna)

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

  • Björk, Tomas & Biagini, Francesca, 2005. "On the Timing Option in a Futures Contract," SSE/EFI Working Paper Series in Economics and Finance 619, Stockholm School of Economics.
  • Handle: RePEc:hhs:hastef:0619
    Note: To appear in Mathematical Finance
    as

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    File URL: http://swopec.hhs.se/hastef/papers/hastef0619.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Boyle, Phelim P, 1989. " The Quality Option and Timing Option in Futures Contracts," Journal of Finance, American Finance Association, vol. 44(1), pages 101-113, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Futures contract; timing option; optimal stopping;

    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

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