Lookback options and diffusion hitting times: A spectral expansion approach

Vadim Linetsky ()

Finance and Stochastics, 2004, vol. 8, issue 3, 373-398

Abstract: Lookback options have payoffs dependent on the maximum and/or minimum of the underlying price attained during the option’s lifetime. Based on the relationship between diffusion maximum and minimum and hitting times and the spectral decomposition of diffusion hitting times, this paper gives an analytical characterization of lookback option prices in terms of spectral expansions. In particular, analytical solutions for lookback options under the constant elasticity of variance (CEV) diffusion are obtained. Copyright Springer-Verlag Berlin/Heidelberg 2004

Keywords: Lookback options; diffusion maximum and minimum; hitting times; spectral expansions; CEV model; Bessel process (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (25)

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DOI: 10.1007/s00780-003-0120-5

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