Lookback options with discrete and partial monitoring of the underlying price

R. C. Heynen and Harry Kat

Applied Mathematical Finance, 1995, vol. 2, issue 4, 273-284

Abstract: We show that in the world of Black and Scholes (1973) lookback options where the underlying price is monitored discretely instead of continuously can be priced in semi-closed form. We derive pricing formulas for a variety of full and partial lookback options, where monitoring takes place at not necessarily equally-spaced points in time. Analysis of the results shows that monitoring the underlying price discretely instead of continuously may have a significant effect on the prices of lookback options but does not introduce new hedging problems.

Keywords: exotic options; lookback options; risk neutral valuation; multivariate normal distribution; numerical integration (search for similar items in EconPapers)
Date: 1995
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Citations: View citations in EconPapers (10)

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DOI: 10.1080/13504869500000014

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