Journal of Financial and Quantitative Analysis Vol. 22 No. 1 1987
The Delivery Option on Forward Contracts
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.
- DOI
- 10.2307/2330871
- Volume
- 22
- Issue
- 1
- Pages
- 79
- Sources
- crossref openalex