Timer Call - History


It appears that the idea was first published in the literature in April 1995 in Management Science by Avi Bick. This paper contained the same idea (including the derivation of the relevant formula) that has since been popularised. In 2007, Société Générale Corporate and Investment Banking (SG CIB) started to market this idea, apparently oblivious of Bick's earlier work in the area. Indisputably, SG CIB popularised it. Since then, most dealers have put in place the technology to offer this sort of option. Assuming the interest rate is zero, Carr and Lee (2010) investigated the pricing and hedging of options on continuous semi-martingales. Li (2008) gave an explicit formula for pricing timer options under the Heston (1993) stochastic volatility model. His result is a natural generalization of Black-Scholes-Merton formula for pricing European options and reconciles with the zero interest rate case in Carr and Lee (2010). An efficient numerical technique is proposed by Bernard and Cui (2011). Li (2008) provides some insight of using the Bessel process with constant drift, which was studied in Linetsky (2004), with drift to characterize the distribution of the so called volatility clock under the celebrated Heston (1993) stochastic volatility model.

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