Lookback option

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Lookback option

An option that allows the buyer to choose as the option strike price any price of the underlying asset that has occurred during the life of the option. For a call option, the buyer will choose the minimum price; for a put option, the buyer will choose the maximum price. This option will always be in the money.

Lookback Option

An option contract where the holder is permitted to choose the strike price. That is, the buyer of a lookback call may choose a low strike price and the buyer of a lookback put may choose a high one. A lookback option is always in the money.
References in periodicals archive ?
After reviewing the technical background, he covers simple exotic options, dual expiry options, two-asset rainbow options, barrier options, lookback options, Asian options, and exotic multi-options.
It may refer either to a subset of the lookback options characterized by a small number of fixing dates that are not necessarily uniformly spaced, or to portfolios of forward start options.
Generally speaking, cliquet options are appealing to investors because they inherit, at least partially, the very attractive payoff of lookback options, while rendering it both more affordable and more flexible, thanks to the decrease in the updating frequency of the running extremum of the underlying asset price, as well as to the possible partial and non uniform spanning of the option life.
One simple way to lower the cost of lookback options consists in defining a discrete updating frequency of the running maximum or minimum.
Therefore, we make use of the probability density function for discrete lookback options in AitSahlia and Lai (1998) to develop our pricing and hedging formulas for the discrete dynamic guaranteed fund.
Lai, 1998, Random Walk Duality and the Valuation of Discrete Lookback Options, Applied Mathematical Finance, 5: 227-240.
In this article, both jump risk and volatility risk are considered for risk management of lookback options embedded in guarantees with a ratchet feature.
For hedging lookback options embedded in insurance benefits, there are potentially serious difficulties due to the requirement of market calibration to the option market.
In particular, it can be used to value the long-term American options and American exotic options, such as lookback options and Asian options, to a high degree of accuracy.
Hull and White [15] developed an efficient procedure for valuing American lookback options and Asian options.
American and European Options - Barrier Options - Lookback Options - Zero Cost Collars - Digital Options - Quanto Options - Straddles, Strangles, and Spreads - Asian Options - Outperformance Options