EconPapers    
Economics at your fingertips  
 

A General Approach for Lookback Option Pricing under Markov Models

Gongqiu Zhang and Lingfei Li

Papers from arXiv.org

Abstract: We propose a very efficient method for pricing various types of lookback options under Markov models. We utilize the model-free representations of lookback option prices as integrals of first passage probabilities. We combine efficient numerical quadrature with continuous-time Markov chain approximation for the first passage problem to price lookbacks. Our method is applicable to a variety of models, including one-dimensional time-homogeneous and time-inhomogeneous Markov processes, regime-switching models and stochastic local volatility models. We demonstrate the efficiency of our method through various numerical examples.

Date: 2021-12
New Economics Papers: this item is included in nep-cwa and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://arxiv.org/pdf/2112.00439 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2112.00439

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().

 
Page updated 2022-02-18
Handle: RePEc:arx:papers:2112.00439