As a kind of exotic options, the holder of
lookback option could look back on the evolution process of underlying assets during the life of option at maturity.
2] and F values in Table VII suggest that the average-strike put option model performs relatively better (worse) on the noninformation-intensive (information-intensive) subsample and that the
lookback option model does the reverse.
The type of contract that provides this feature to its fullest extent is the
lookback option, whose payoff at expiry T writes (for a call with fixed strike):
The
lookback option was analyzed by Goldman, Sosin, and Gatto (1979).
Due to a potentially excessive liability, hedging the
lookback option embedded in a ratchet GMDB is a more difficult problem than hedging options embedded in a GMDB with return of premium, roll-up or reset guarantees.
Kwok, "Characterization of optimal stopping regions of American Asian and
lookback options," Mathematical Finance, vol.
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.
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.
Vorst, 1997, "Currency
Lookback Options and Observation Frequency--A Binomial Approach", Journal of International Money and Finance, 16:173-187
Exotic Options--Asian
Lookback Options Using Arithmetic Averages.
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.
American and European Options - Barrier Options -
Lookback Options - Zero Cost Collars - Digital Options - Quanto Options - Straddles, Strangles, and Spreads - Asian Options - Outperformance Options
