Scandinavian Working Papers in Economics
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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 619:
On the Timing Option in a Futures Contract

Tomas Björk () and Francesca Biagini

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.

Keywords: Futures contract; timing option; optimal stopping; (follow links to similar papers)

JEL-Codes: G12; G13; (follow links to similar papers)

20 pages, November 9, 2005

To appear in Mathematical Finance

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