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The Delivery Option on Forward Contracts

Published online by Cambridge University Press:  06 April 2009

Miles Livingston
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Abstract

Many futures contracts contain a delivery option, which allows the short position a choice to deliver one of several varieties of a commodity. Several authors have argued that delivery options can have considerable value. For a forward contract with a delivery option, this paper shows that a continuously adjusted hedge will drive the value of the delivery option towards zero, assuming perfect and frictionless markets.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 22 , Issue 1 , March 1987 , pp. 79 - 87
Copyright
Copyright © School of Business Administration, University of Washington 1987

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References

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