() and Francesca Biagini
Tomas Björk: Dept. of Finance, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Francesca Biagini: Dipartimento di Matematica, Universita di Bologna, Postal: Piazza di Porta S. Donato, 5, I-40127 Bologna, Italy
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.
20 pages, November 9, 2005
Note: To appear in Mathematical Finance
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