Rational restrictions are derived for the values of American options on futures contracts. For these options, the optimal policy, in general, involves premature exercise. A model is developed for valuing options on futures contracts in a constant interest rate setting. Despite the fact that premature exercise may be optimal, the value of this American feature appears to be small and a European formula due to Black serves as a useful approximation. Finally, a model is developed to value these options in a world with stochastic interest rates. It is shown that the pricing errors caused by ignoring the location of the interest rate (relative to its long-run mean) range from -5.
Ramaswamy, Krishna, and M. Suresh Sundaresan. "The Valuation of Options on Futures Contracts." Journal of Finance 40, no. 5 (December 1985): 1319-40.
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