Hello,I am trying to price a physical option:Basically, you have the right during 1 year to book a physical vessel (payoff = call strike 40 - put strike 25).So this looks like a fwd start option, **but** if the spot is way above the call strike, then the traders have the option of purchase the option right away and starting to hedge the call so as to lock the profit -> this is a kind of American Fwd Option on a Fence Option.Are there some papers available on this kind of options and the "optimal" way to hedge them?Are there some closed form approximations (I am certainly daydreaming here) or is a pricing by PDE the only way?Thanks a lot

Could you try to explain your option a little bit more? I think it can be just a combination of options that can be decomposed and solved by closed form approximations.

doesn't make much sense. what is the payoff ? Is it 15 (40-25) ?

Is this an option to buy a fence/risk-reversal? i.e. payoff max( call(strike=40)-put(strike=25) - premiumstrike, 0)Don't quite see where is physical nature comes in?If that's dry bulk, looks an interesting one! QuoteOriginally posted by: regis99Hello,I am trying to price a physical option:Basically, you have the right during 1 year to book a physical vessel (payoff = call strike 40 - put strike 25).So this looks like a fwd start option, **but** if the spot is way above the call strike, then the traders have the option of purchase the option right away and starting to hedge the call so as to lock the profit -> this is a kind of American Fwd Option on a Fence Option.Are there some papers available on this kind of options and the "optimal" way to hedge them?Are there some closed form approximations (I am certainly daydreaming here) or is a pricing by PDE the only way?Thanks a lot

QuoteOriginally posted by: twIs this an option to buy a fence/risk-reversal? i.e. payoff max( call(strike=40)-put(strike=25) - premiumstrike, 0)Exactly. It is an American option to buy a fence. The physical nature comes from the fact that these call/puts are implied (they are embedded in the actual contract to lease the vessel).I just mentioned this fact because I thought there may have been some litterature specific to these kind of options.Many thanks.