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Lookback Options (lookback + option)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	100%

Selected Abstracts

A NEW METHOD OF PRICING LOOKBACK OPTIONS

MATHEMATICAL FINANCE, Issue 2 2005
Peter Buchen
A new method for pricing lookback options (a.k.a. hindsight options) is presented, which simplifies the derivation of analytical formulas for this class of exotics in the Black-Scholes framework. Underlying the method is the observation that a lookback option can be considered as an integrated form of a related barrier option. The integrations with respect to the barrier price are evaluated at the expiry date to derive the payoff of an equivalent portfolio of European-type binary options. The arbitrage-free price of the lookback option can then be evaluated by static replication as the present value of this portfolio. We illustrate the method by deriving expressions for generic, standard floating-, fixed-, and reverse-strike lookbacks, and then show how the method can be used to price the more complex partial-price and partial-time lookback options. The method is in principle applicable to frameworks with alternative asset-price dynamics to the Black-Scholes world. [source]

Path-dependent currency options with mean reversion

THE JOURNAL OF FUTURES MARKETS, Issue 3 2008
Hoi Ying Wong
This paper develops a path-dependent currency option pricing framework in which the exchange rate follows a mean-reverting lognormal process. Analytical solutions are derived for barrier options with a constant barrier, lookback options, and turbo warrants. As the analytical solutions are obtained using a Laplace transform, this study numerically shows that the solution implemented with a numerical Laplace inversion is efficient and accurate. The pricing behavior of path-dependent options with mean reversion is contrasted with the Black-Scholes model. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:275,293, 2008 [source]