Two exotic lookback options

Bermin, H; Buchen, PW; Konstandatos, O

Two exotic lookback options

Bermin, H Buchen, PW Konstandatos, O

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Publisher:: Routledge
Publication Type:: Journal Article
Citation:: Applied Mathematical Finance, 2008, 15 (4), pp. 387 - 402
Issue Date:: 2008-01

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Field	Value	Language
dc.contributor.author	Bermin, H	en_US
dc.contributor.author	Buchen, PW	en_US
dc.contributor.author	Konstandatos, O	en_US
dc.date.issued	2008-01	en_US
dc.identifier.citation	Applied Mathematical Finance, 2008, 15 (4), pp. 387 - 402	en_US
dc.identifier.issn	1350-486X	en_US
dc.identifier.uri	http://hdl.handle.net/10453/12768
dc.description.abstract	This paper formally analyses two exotic options with lookback features, referred to as extreme spread lookback options and look-barrier options, first introduced by Bermin. The holder of such options receives partial protection from large price movements in the underlying, but at roughly the cost of a plain vanilla contract. This is achieved by increasing the leverage through either floating the strike price (for the case of extreme spread options) or introducing a partial barrier window (for the case of look-barrier options). We show how to statically replicate the prices of these hybrid exotic derivatives with more elementary European binary options and their images, using new methods first introduced by Buchen and Konstandatos. These methods allow considerable simplification in the analysis, leading to closed-form representations in the BlackScholes framework.	en_US
dc.publisher	Routledge	en_US
dc.relation.ispartof	Applied Mathematical Finance	en_US
dc.relation.isbasedon	10.1007/978-3-642-24412-4_20	en_US
dc.subject.classification	Finance	en_US
dc.title	Two exotic lookback options	en_US
dc.type	Journal Article
utslib.citation.volume	4	en_US
utslib.citation.volume	15	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	0102 Applied Mathematics	en_US
utslib.for	0103 Numerical and Computational Mathematics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
utslib.copyright.status	closed_access
pubs.consider-herdc	true	en_US
pubs.issue	4	en_US
pubs.volume	15	en_US

Abstract:

This paper formally analyses two exotic options with lookback features, referred to as extreme spread lookback options and look-barrier options, first introduced by Bermin. The holder of such options receives partial protection from large price movements in the underlying, but at roughly the cost of a plain vanilla contract. This is achieved by increasing the leverage through either floating the strike price (for the case of extreme spread options) or introducing a partial barrier window (for the case of look-barrier options). We show how to statically replicate the prices of these hybrid exotic derivatives with more elementary European binary options and their images, using new methods first introduced by Buchen and Konstandatos. These methods allow considerable simplification in the analysis, leading to closed-form representations in the BlackScholes framework.

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http://hdl.handle.net/10453/12768