Lookback options, Financial Management

Can you describe what the payoffs from lookback options depend on? Can you write in a concise notation the payoff of a floating lookback call?

a. What is the payoff of a portfolio with a long position in a floating lookback call and with a short position in a floating lookback call with the same maturity on the same underlying asset?

b. Consider a newly written floating lookback put on a non-dividend paying-stock where the stock price is 50, the stock price volatility is 40% per annum, the risk-free rate is 10% per annum (CONT), and the time to maturity is 3 months. Calculate the value of the put.

c. Does any type of put-call parity hold for lookback option? If so, write this relation and explain the different components.

d. Does a floating lookback call become more valuable or less valuable as we increase the frequency with which we observe the asset price in calculating the minimum?


Posted Date: 2/23/2013 4:56:56 AM | Location : United States

Your posts are moderated
Related Questions
1. If Robinson wishes to maximize its total market value, would you recommend that it issue debt or equity to finance the land purchase? Explain. 2. Construct Robinson’s market va

The ledger of AISExperts Inc. showed the following balances after adjustment , but before closing, on December 31, 2012, the end of the current year: Accounts payab

Payback Period It is an amount of time, mainly measured in years; it takes previously the undiscounted cash inflows from a project equal the cash outflow. It indicates the leng

Suggestion regarding Credit limit. Should it be approved or not, what should be the amount of credit limit that electronics give to Booth Plastics.

Assume today is 3 December 2009. Helen is 30 years old and has a Bachelor of Business. She is currently employed as a personal banker for ANZ banking group in Sydney and earns $380

Question: i) What are the rationales of interest swaps? ii) You are the corporate treasurer of LSE International Inc. Your firm, rated as AAA, is able to raise capital in

Role of Primary Dealers To promote the investment activity in the Government Securities market, several countries have adopted licensed Primary Dealers (PDs) as important inter

ARROW as an FSA's risk based approach to regulation ARROW stands for Advanced, Risk-Responsive Operating Framework. In January 2000, FSA set out a proposed approach to regulati

evaluate the importance of leverage in a small scale company

Various Types of Strategies Different types of hedge fund strategies are discussed as follows: Relative Value of Strategies: Relative value strategies are also known as no