Pricing formula of Lookback option in stochastic delay differential equation model

Paek Il-Kwang, Kang Chol-Su and Kim Kyong-Hui

Statistics & Probability Letters, 2025, vol. 216, issue C

Abstract: This paper deals with new explicit pricing formulae for Lookback option when underlying asset price processes are represented by stochastic delay differential equation (hereafter “SDDE”). We derive a lemma on the joint distribution of the minimum and itself of a Wiener process in the SDDE model. Using this lemma, we obtain the explicit pricing formulae for the Lookback option. Through some numerical comparison experiment, we assure the correctness of the obtained pricing formula.

Keywords: Pricing formula; Lookback option; Stochastic delay differential equation; Black-Scholes model (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1016/j.spl.2024.110283

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