ABHIRAJ P

Roll No. 1
Lookback options
Lookback options, in the terminology of finance, are a
type of exotic option with path dependency, among many
other kind of options. The payoff depends on the optimal
(maximum or minimum) underlying asset's price
occurring over the life of the option. The option allows the
holder to "look back" over time to determine the payoff.
There exist two kinds of lookback options: with floating
strike and with fixed strike.
With fixed strike
As for the standard European options, the option's strike
price is fixed. The difference is that the option is not
exercised at the price at maturity: the payoff is the
maximum difference between the optimal underlying asset
price and the strike.
With floating strike
Using the Black–Scholes model, and its notations, we
can price the European lookback options with floating
strike. The pricing method is much more complicated than
for the standard European options and can be found in
Musiela.
Asian option
An Asian option is an option type where the payoff
depends on the average price of the underlying asset over
a certain period of time as opposed to standard options
(American and European) where the payoff depends on
the price of the underlying asset at a specific point in time
(maturity).
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