Journal of Finance Vol. 40 No. 5 1985
Options on the Spot and Options on Futures
Abstract
This paper analyzes and compares the valuation of two types of options that relate to the same asset: options on the asset itself and options on the futures on the asset. The early exercise privilege plays a central role in explaining the differences between the values of the two options. It is shown that in the case of a cash instrument that does not make interim payments, such as gold, the value of a call option on the spot is smaller than the call option on the futures contract; the opposite is true for put options. The early exercise boundaries, which characterize when it pays to exercise, are also compared and analyzed.
- DOI
- 10.1111/j.1540-6261.1985.tb02384.x
- Volume
- 40
- Issue
- 5
- Pages
- 1303-1317
- Language
- en
- Sources
- openalex crossref