forward start american options

tkh · August 29th, 2007, 9:54 am

i can't seem to find anything regarding forward start(ing) american/bermudan options i.e.premium paid on T0, but optionality to exercise begins only on forward date T1(T1>T0) right up to maturity T2. (T0<T1<T2)could anyone point me to the right direction with regards to pricing such a product ie articles etc?Can this be approximated as a vanilla euro option from T0 to T1 and an american option from T1 and T2?If no, why not?Thanks.

sanjaysivakumar · August 29th, 2007, 10:21 am

where do you use it. it is some thing like a forward contract on an american option. Basically you are looking to block the premium (inditectly vol)

ppauper · August 29th, 2007, 12:20 pm

QuoteOriginally posted by: tkhCan this be approximated as a vanilla euro option from T0 to T1 and an american option from T1 and T2?option on an option.American option from T1 to T2.You can work out the value of that American option as a function of stock price on T1,and then buy a European with that payoff.(or use a forward as san..... suggested)

tkh · August 30th, 2007, 12:33 am

yup ok.thanks ppauper and sanjay.

daveangel · September 3rd, 2007, 5:39 pm

tkh i dont think its an option on an option .. can you be more specific ? Is the strike price fixed in $ terms or is a %age of spot ? is the structure like a 6 month option where the strike price is fixed in 1 month and can only be exercised thereafter ?