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On the Timing Option in a Futures Contract

  • Björk, Tomas

    ()

    (Dept. of Finance, Stockholm School of Economics)

  • Biagini, Francesca

    (Dipartimento di Matematica, Universita di Bologna)

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    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.

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    File URL: http://swopec.hhs.se/hastef/papers/hastef0619.pdf
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    Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 619.

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    Length: 20 pages
    Date of creation: 09 Nov 2005
    Date of revision:
    Handle: RePEc:hhs:hastef:0619
    Note: To appear in Mathematical Finance
    Contact details of provider: Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
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    1. 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.
    2. 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.
    3. Boyle, Phelim P, 1989. " The Quality Option and Timing Option in Futures Contracts," Journal of Finance, American Finance Association, vol. 44(1), pages 101-13, March.
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