SSE/EFI Working Paper Series in Economics and Finance
On the Timing Option in a Futures Contract
() 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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