ABSTRACT
A timer option terminates prematurely if the accumulated discrete realized variance ex- ceeds a given variance budget on a monitoring date. In essence, the earlier knock-out feature floats with the realized variance. The earlier timer option pricing models focus on the perpetual timer options that have no mandatory expiry date and assume continuous monitoring of potential premature knock-out. To reflect the actual contractual specifica- tions, later research works manage to price finite maturity timer options under discrete monitoring of premature knock-out. This chapter discusses the different approaches of pricing timer options, which include analytic derivation of closed form formulas, analyt- ic approximation via perturbation methods, numerical Fourier transform algorithms and analytic-simulation methods. The highlight of the chapter is the derivation of the Fourier integral representation of the price functions of the finite maturity timer options under the 3/2-model. [135 words]
