Foreign equity lookback options with partial monitoring

Hangsuck Lee, Hongjun Ha and Byungdoo Kong

Finance Research Letters, 2024, vol. 67, issue PA

Abstract: A lookback option on foreign equity reduces the uncertainty of foreign investment by delivering the benefit of hindsight. Despite its high marketability, purchasing the option is stalled due to the failure to meet customized demands. This paper proposes foreign equity lookback options with partial monitoring and floating strike price to control the option premiums. We establish the expected value of the extreme of an underlying process when the specific condition, covering various payoffs of the lookback options, is satisfied. It is exploited to derive the unified closed-form pricing formula. We demonstrate the properties of the option prices through numerical examples.

Keywords: Foreign equity lookback option; Partial monitoring; Floating strike (search for similar items in EconPapers)
JEL-codes: G13 G22 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:67:y:2024:i:pa:s1544612324007566

DOI: 10.1016/j.frl.2024.105726

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