In mathematical finance

Mathematical finance

Mathematical finance is a field of applied mathematics, concerned with financial markets. The subject has a close relationship with the discipline of financial economics, which is concerned with much of the underlying theory. Generally, mathematical finance will derive and extend the mathematical...

, the fugit is the optimal date to exercise an American or Bermudan option. It is useful to compute it for hedging purpose.

Origin

First introduced by Mark Garman in an article "Semper tempus fugit" published in 1989 by Risk Publications, this name was designed to represent a quantity used in binomial trees to estimate American options. The Latin term "tempus fugit" means "time flies" and Mark Garman suggested to use that word because "time flies especially when you're having fun managing your book of American options".

Practical use

One can represent flows of an American swaption like the flows of a swap starting at the fugit multiplied by delta then use these to compute sensitivities.