Pricing discrete lookback options under a jump diffusion model
Date Issued
2007
Date
2007
Author(s)
Yen, Ju-Fang
DOI
en-US
Abstract
A lookback option introduced in 1979 by Goldman et al. is a path dependent option settles based upon the maximum or minimum of the underlying price process achieved during the entire life of the option. Most models for pricing lookback options assume continuous monitoring of the extreme and have closed solutions. However, in practice, many real contracts with lookback provisions specify discrete monitoring times. Such options are called discrete lookback options. In this article, we focus on pricing discrete lookback options using continuous lookback formulas by applying a simple continuity correction under the constant jump diffusion model. We use the same method of correction as Broadie et al. (1999) which have solved such problems under the geometric Brownian motion setting. The correction is justified theoretically by applying the techniques from sequential analysis, particularly Siegmund (1985). And we also give numerical results.
Subjects
lookback options
jump diffusion model
continuity correction
Laplace transform
回顧選擇權
跳躍擴散模型
調整擴散逼近
Laplace轉換
Type
thesis
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