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ISOLATING THE WILD CARD OPTION
Author(s) -
Cohen Hugh
Publication year - 1995
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/j.1467-9965.1995.tb00107.x
Subject(s) - treasury , futures contract , valuation of options , call option , option value , bond , value (mathematics) , put option , economics , asian option , business , financial economics , actuarial science , microeconomics , computer science , finance , archaeology , machine learning , history , incentive
Many embedded options are difficult to value the wild card option in the Treasury bond futures contract is one of these embedded options. We illustrate how narrow theoretical bounds on the value of this option, relative to the price of the contract, may be obtained in the presence of other embedded options. Simulations suggest that the value of the wild card option is close to zero. This implies that, in this economy, a simpler pricing model of the Treasury bond futures contract, which ignores the wild card option, will result in only a small loss of accuracy.