Quanto lookback options

Min Dai, Hoi Ying Wong, Yue Kuen Kwok

Research output: Journal article publicationJournal articleAcademic researchpeer-review

19 Citations (Scopus)

Abstract

The lookback feature in a quanto option refers to the payoff structure where the terminal payoff of the quanto option depends on the realized extreme value of either the stock price or the exchange rate. In this paper, we study the pricing models of European and American lookback options with the quanto feature. The analytic price formulas for two types of European-style quanto lookback options are derived. The success of the analytic tractability of these quanto lookback options depends on the availability of a succinct analytic representation of the joint density function of the extreme value and terminal value of the stock price and exchange rate. We also analyze the early exercise policies and pricing behaviors of the quanto lookback options with the American feature. The early exercise boundaries of these American quanto lookback options exhibit properties that are distinctive from other two-state American option models.

Original languageEnglish
Pages (from-to)445-467
Number of pages23
JournalMathematical Finance
Volume14
Issue number3
DOIs
Publication statusPublished - Jul 2004
Externally publishedYes

Keywords

  • Early exercise policies
  • Lookback options
  • Quanto feature

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Social Sciences (miscellaneous)
  • Economics and Econometrics
  • Applied Mathematics

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