lookback put option

Lookback Put Option

A put option giving the holder the right (but not the obligation) to sell the underlying asset on or by the expiration date at the highest price that occurs between the start of the option and the time it is exercised. Because there is no set strike price and the lookback gives the option holder the highest possible flexibility, it carries a high premium (or sale price). See also: Lookback Call Option.

lookback put option

A specialized option that gives its owner the right to sell the underlying asset at the highest price at which it traded between the effective date and the expiration date of the option.
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2) Longstaff (1995) obtains an upper bound on the marketability discount consistent with this range by modeling the value of marketability as the price of a lookback put option.
Section VI furnishes evidence that the marketability discounts predicted by the average-strike put option model are more consistent with empirical private placement discounts than those predicted by the lookback put option model after adjusting for ownership concentration, information, and overvaluation effects.
Longstaff (1995) models the marketability discount as a lookback put option whose value depends upon stock volatility and the time to expiration of the transfer restrictions.
Longstaff (1995) proposes a lookback put option model, and Finnerty (2012) proposes an average-strike put option model that can be used to quantify the loss of timing flexibility.
The lookback put option Model (9) assumes that investors have perfect market-timing ability, whereas the investor is not assumed to have any special timing ability in the average-strike put option Model (10)-(11).
The lookback put option model may be more appropriate in the presence of asymmetric information for equity placed with strategic or related investors, while the average-strike put option model seems more appropriate for (unrelated) institutional investors, who have greater liquidity and are much less likely to have valuable private information about the firm.
The average-strike put option model closely approximates the mean actual private placement discount for the full sample, whereas the lookback put option model substantially overstates it in Table VI.
First, if the lookback put option model explains the discounts in the information-intensive subsample better than the average-strike put option model, then the coefficients of the information intensity variables Risk, Strategic x Fraction, and Related x Fraction should be less significant in the lookback put option model than in the average-strike put option model for the information-intensive subsample, and the coefficient of Risk should be less significant in the lookback put option model for the information-intensive subsample than the full sample because the information effect is already captured in the lookback model discount.
Comparing the regression results in Table VII, the coefficients of Risk, Fraction, and Related x Fraction reverse sign in the lookback put option model regression on the information-intensive subsample, but not in the average-strike put option model regression on the same subsample.
The benefit of GMDB with a ratchet feature equals the account value plus a lookback put option with payoff [[PI].
A lookback put option allows the owner to sell the underlying asset at the highest price during the life of the put option.
Table 9 Comparison of American lookback put option values using alternative approaches: zero dividend case (K = 40) S [sigma] T r [P.