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Two Closed-Form Formulas for the Futures Price in the Presence of a Quality Option

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  • Avi Bick

Abstract

The paper derives closed-form formulas for the futures price in the presence of a multi-asset quality option. This is done for two cases: In the first one the underlying assets are zero coupon bonds with different maturities in the single-factor Vasicek model. In the second one these are commodities in a multi-factor setting, again with Vasicek interest rate uncertainty.

Suggested Citation

  • Avi Bick, 1997. "Two Closed-Form Formulas for the Futures Price in the Presence of a Quality Option," Review of Finance, European Finance Association, vol. 1(1), pages 81-104.
    • Handle: RePEc:oup:revfin:v:1:y:1997:i:1:p:81-104.
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    File URL: http://hdl.handle.net/10.1023/A:1009782109750
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    Cited by:

    1. Lindset, Snorre, 2005. "Valuing the flexibility of currency choice in multinational trade with stochastic exchange rates," Journal of Multinational Financial Management, Elsevier, vol. 15(2), pages 137-153, April.
    2. Reichardt, Susana, 2006. "On the future contract quality option: a new look," DEE - Working Papers. Business Economics. WB wb063711, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    3. A. Bellier-Delienne, 2005. "Synthèse sur les Options de Livraison dans les Contrats à Terme," THEMA Working Papers 2005-09, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    4. João Pedro Vidal Nunes & Luís Alberto Ferreira De Oliveira, 2007. "Multifactor and analytical valuation of treasury bond futures with an embedded quality option," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 27(3), pages 275-303, March.
    5. Alejandro Balbas & Susana Reichardt, 2010. "On the future contract quality option: a new look," Applied Financial Economics, Taylor & Francis Journals, vol. 20(15), pages 1217-1229.

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