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Meetup Dec 12 in North York! Quant ‘Secret Sauce’ tricks of Matlab, bridge to C++/C#, FREE .NET open source HFT trading platform, and MYSQL historical database for back testing

Register and details at:

http://www.meetup.com/quant-finance/events/42092262/

Quant Analytics: Lookback options for commodities

Quant Analytics: Lookback options for commodities

 

Will have stock price at t0 (time), t1, or t2.

Hopefully European call option will rise above the Strike price (K) before excerise. When stock price is greater than K, we get the intrinsic gain which S-K. This is a plain vanilla option.

 

Lookback call option but does not have a strike price but the holder of the lookback call uses the minimum price of the stock during the holding period. The minimum price becomes the excerise price.

 

Payoff=MAX[0,S*T2-Sminimum)

 

The more the frequency of measurement, the greater the value of the lookback otion.

 

Lookback put:

 

The holder of the lookback option, gets to lookback at the maximum of the asset during that period.

Payoff = MAX[0, SMaximum-S*T2]

 

http://www.youtube.com/watch?v=uNdlxAuLjL8