Quanto Lookback Options

23 Pages Posted: 13 Aug 2004

See all articles by Min Dai

Min Dai

National University of Singapore (NUS) - Department of Mathematics

Yue Kuen Kwok

Hong Kong University of Science & Technology - Department of Mathematics

Hoi Ying Wong

The Chinese University of Hong Kong (CUHK) - Department of Statistics

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.

Keywords: Lookback options, quanto feature, early exercise policies

Suggested Citation

Dai, Min and Kwok, Yue Kuen and Wong, Hoi Ying, Quanto Lookback Options. Mathematical Finance, Vol. 14, No. 3, pp. 445-467, July 2004. Available at SSRN: https://ssrn.com/abstract=565107

Min Dai (Contact Author)

National University of Singapore (NUS) - Department of Mathematics ( email )

Singapore

Yue Kuen Kwok

Hong Kong University of Science & Technology - Department of Mathematics ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Hoi Ying Wong

The Chinese University of Hong Kong (CUHK) - Department of Statistics ( email )

Shatin, N.T.
Hong Kong

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