Lookback options are a type of path-dependent options. A Lookback Call (Put) allows the holder to buy (sell) the underlying asset at the lowest (highest) price reached during the term of the option.
Lookbacks are generaly more expensive than similar vanilla style options, due to the fact that they are never out-of-the-money.
Types of Lookback options
There are two classes of Lookback options, floating strike and fixed strike.
- Fixed Strike Lookback options are only settled in cash. The option's strike is set at inception. The payoff is the maximum difference between the optimal price (lowest for call, highest for a put) and the strike price.
- Floating Strike Lookback options are either cash or asset settled. The holder of a floating strike option may buy (sell) the underlying asset at the optimal price the asset reached during the look back period.
Lookback option models are included as part of the Resolution Exotics module.