The Value of Wildcard Options




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    • Fleming is from the Jones Graduate School of Administration, Rice University, and Whaley is from the Fuqua School of Business, Duke University. This research was supported by the Futures and Options Research Center and the Business Associates' Fund at the Fuqua School of Business, Duke University. Comments and suggestions by Barbara Ostdiek, ***Chis Kirby, René Stulz and, in particular, Mark Rubinstein and an anonymous referee substantially improved this manuscript. We also gratefully acknowledge comments from seminar participants at the University of Colorado, Duke University, Georgia Institute of Technology, University of Illinois, University of Iowa, Northwestern University, Purdue University, Rice University, and Vanderbilt University.


Wildcard options are embedded in many derivative contracts. They arise when the settlement price of the contract is established before the time at which the wildcard option holder must declare his intention to make or accept delivery and the exercise of the wildcard option closes out the underlying asset position. This paper provides a simple method for valuing wildcard options and illustrates the technique by valuing the sequence of wildcard options embedded in the S&P 100 index (OEX) option contract. The results show that wildcard options can account for an economically significant fraction of OEX option value.