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Double Lookbacks
Author(s) -
He Hua,
Keirstead William P.,
Rebholz Joachim
Publication year - 1998
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/1467-9965.00053
Subject(s) - mathematics , valuation (finance) , asset (computer security) , econometrics , economics , geometric brownian motion , mathematical economics , finance , computer science , economy , computer security , diffusion process , service (business)
A new class of options, double lookbacks , where the payoffs depend on the maximum and/or minimum prices of one or two traded assets is introduced and analyzed. This class of double lookbacks includes calls and puts with the underlying being the difference between the maximum and minimum prices of one asset over a certain period, and calls or puts with the underlying being the difference between the maximum prices of two correlated assets over a certain period. Analytical expressions of the joint probability distribution of the maximum and minimum values of two correlated geometric Brownian motions are derived and used in the valuation of double lookbacks. Numerical results are shown, and prices of double lookbacks are compared to those of standard lookbacks on a single asset.