American Options with Lookback Payoff
22 Pages Posted: 9 Aug 2004
Date Written: March 15, 2004
We examine the early exercise policies and pricing behaviors of one-asset American options with lookback payoff structures. The classes of option models considered include floating strike lookback options, Russian options, fixed strike lookback options and pricing model of protection fund. In each class of the American lookback options, we analyze the characterization of the optimal stopping region, in particular, their asymptotic behaviors at time close to expiration and at infinite time to expiration. The inter-relations between the price functions of these American lookback options are explored. The mathematical technique of analyzing the exercise boundary curves of lookback options at infinitesimally small asset value is also applied to a similar analysis in the American two-asset minimum-put option model.
Keywords: Lookback options, American feature, free boundary value problems
JEL Classification: G13
Suggested Citation: Suggested Citation